Debt swap in Buenos Aires would be deja vu for investors

By on August 11, 2021 0

(Bloomberg) – As Argentina’s largest province seeks to restructure its defaulting debt, investors who went through a similar saga with the federal government a year ago may feel a sense of déjà vu.

As in the case of sovereign bonds, reaching an agreement is complicated by the fact that part of the debt of the Province of Buenos Aires is subject to different rules than those of other tranches. These are the collective action clauses (CAC) which set the percentage of holders who must accept an agreement for it to be implemented.

The specific threshold is vitally important as creditors are split on the latest proposal, meaning the vote on the deal could be adjusted. While the province’s US $ 5.2 billion in debt requires approval from holders of two-thirds of the outstanding amount, the US $ 1.9 billion of bonds issued under previous rules require an agreement. at 85% to wear all holders.

There is a risk of bonds being locked with older contracts, according to Juan Ignacio Paolicchi, an economist at Buenos Aires-based consultancy Empiria.

The federal government received broad support for its $ 65 billion restructuring in August last year, with 99% of debt restructured under the swap. There were still bonds that did not meet the required threshold, and the government ended up paying them in full, which benefited investors who resisted.

Buenos Aires’ largest investor, GoldenTree Asset Management, has said it accepts the debt proposal, and the province has suggested it has sufficient support for bonds with lower CAC thresholds. The proposal expires on August 27, and the results will be released three days later. Bonds due 2027 closed Tuesday at 49.5 cents to the dollar.

The fate of older $ 1.9 billion bonds is much less certain, in part because holdings are more widely distributed. In addition to the cumulative threshold of 85% for all older bonds, each series also needs at least two-thirds of the acceptance to be approved.

Following a request for comment, a provincial official said the offer was submitted after lengthy negotiations and included incentives for the participation of all bondholders, including those with obligations under the bondholders’ contracts. 2006.

With nearly 18 million inhabitants and two-fifths of Argentina’s gross domestic product, the provincial government is betting that it will be able to convince reluctant creditors with incentives such as the payment of accrued interest on existing bonds for those who agree before the deadline. . But if certain bonds are excluded from the restructuring, litigation could continue over the bonds that were not traded, according to Buenos Aires-based brokerage firm TPCG Valores.

Source of the article

Disclaimer: This article is generated from the feed and is not edited by our team.