Argentina defuses crisis by default with ‘massive’ debt deal

BUENOS AIRES (Reuters) – Argentina allayed fears of a messy default after securing backing from its creditors, allowing it to swap 99% of the bonds involved in a $ 65 billion restructuring, a deal which could set a precedent for future sovereign crises.

Argentine Economy Minister Martin Guzman salutes before attending a press conference to give details of the deal with major private creditors to restructure Argentina’s sovereign debt, at the presidential palace Casa Rosada, in Buenos Aires, Argentina, August 31, 2020. Juan Mabromata / Pool via REUTERS / Files

After months of tortuous and tense negotiations, framed by the coronavirus pandemic, bond holders contributed 93.55% of the bonds eligible for the exchange, which, together with collective action clauses (CAC), has allowed to reach an almost complete agreement.

“In recent days, we have been working on the conditions of an offer which has been massively accepted by our creditors following the dialogue process in recent months,” Economy Minister Martin Guzman said on Monday during a meeting. press conference.

A solid deal is a major victory for Argentina, Latin America’s third-largest economy, as it seeks to escape its ninth sovereign default and revive an economy in its third year of recession and expected to contract by around 12 , 5% this year.

Reuters reported on Friday, when the deal closed, that the government was confident in strong support from creditors after convincing its three major creditors groups of a tentative deal earlier in August.

Center-left President Alberto Fernandez, who took power in December, said Argentina was in a “maze” of debt that had now been resolved. He thanked his allies, including Pope Francis, an Argentinian and Mexican President Andres Manuel Lopez Obrador.

The government said the agreement and a separate local law dollar debt restructuring would together provide $ 37.7 billion in financial relief over the period 2020-2030 and help reduce average interest payments on foreign law obligations at 3% against 7%.

“Now there are other challenges, the first of which is to reactivate the internal market,” Fernandez told presidential palace Casa Rosada.


Guzman said Argentina should now focus on signing a new program with the International Monetary Fund to replace a $ 57 billion facility agreed in 2018, as well as tackling provincial debt under the framework. various smaller regional restructurings.

He said the government plans to send a 2021 budget bill to Congress in mid-September, which would include a forecast of a primary budget deficit of around 4.5% next year. A new deal with the IMF is unlikely until March next year, Guzman said.

The 1% of bonds that fell below restructuring support collective action clause (CAC) thresholds highlighted pockets of retention on individual bonds, although Guzman told reporters that this was not a major problem and would be solved.

In a statement, the government said it had excluded certain series of bonds, including USD Par 2038 II and III bonds and Euro Par 2038 II and III bonds following the results of the invitation.

Bonds being restructured have CACs, which means the government needs some level of support to restructure them. Older 2005 treaty bonds require a combined 85% creditor support, with two-thirds of the support needed for each individual series.

Strong support and some reluctance contrast with Argentina’s debt restructuring in 2005, which saw creditors holding about a quarter of the bonds reject a deal, resulting in more than a decade of legal battles.

“I expected them to easily cross the CAC threshold on most bonds, but this result was on the high side of my expectations,” said Ajata Mediratta, president of Greylock Capital Management in New York, who has participated in the talks.

Eduardo Levy Yeyati, an economist at the University of Torcuato Di Tella, said the good result underscored the important role of CACs, similar to what happened during a recent successful restructuring in Ecuador.

“Once the government made a realistic offer acceptable to creditors, CACs urged others to join in, deterring holdouts and avoiding costly litigation,” he said. We now have four years ahead of us to implement the policies that make this exchange a lasting solution. “

Reporting by Adam Jourdan, Hugh Bronstein and Walter Bianchi; Additional reporting by Eliana Raszewski and Rodrigo Campos in New York; Editing by Rosalba O’Brien, Leslie Adler and Catherine Evans

Naomi C. Amerson