Wednesday, December 7, 2022

Argentina’s sweetened debt offer wins initial praise; bonds jump

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Argentina’s new debt restructuring offer won a tentative thumbs up from creditors as they digested the details on Monday, pumping up the country’s bonds on hopes the two sides could strike a deal by an extended Aug. 4 deadline.

Two prominent funds, Gramercy and FinTech, quickly said they would back the deal, though there was no immediate sign of whether it would gain the blessing of the biggest bloc of creditors including BlackRock and Fidelity.

Argentina laid out an improved and “final” offer on Sunday that increased creditors’ payments, shortened their wait time, and changed key legal clauses that had become a source of tension.

The revised offer, set to be formalized with U.S. regulators, came after tensions flared with two major creditor groups and talks stalled in mid-June, as the grains powerhouse was battered by the coronavirus pandemic.

“Considering everything that the country is going through, it looks to like a fairly good offer,” said Alejandro Hardziej at bondholder Pala Asset Management. He added that creditors might have liked a “GDP warrant” for extra payments if economic growth improves.

A deal is key for Argentina avoiding a messy and protracted legal standoff that could lock the country out of international markets and drag it further into recession.

“We look forward to supporting Argentina’s offer as it provides … debt sustainability that is crucial for durable, high and inclusive economic growth,” Gramercy and FinTech said in a joint statement.

Under the proposal, Argentina would start making payments in one year versus three in its original offer in April. Coupon payments start low but could rise to around 5%.

“The valuation gap with the latest bondholder proposals has shrunk considerably,” analysts at U.S. investment bank Citi said in a note, calculating the gap at 4-5 cents on the dollar.

The bank expected a “sizable” proportion of investors holding the ‘exchange’ bonds that were restructured last time Argentina defaulted to sign up to the deal, as the government had backed away from eroding their legal rights.

There might not be such high take up, however, from those with bonds sold under the country’s previous President Mauricio Macri, as their replacement bonds would be issued under terms which offer less legal protection.

DEAL RISK

Siobhan Morden at Amherst Pierpont said in a note the offer was “reasonable” and calculated its value at 53 cents on the dollar at an exit yield of 10%. She added, however, that the lack of an accord previously with key bondholder groups was a hurdle.

“There is still deal risk as this last phase was not negotiated with the Ad Hoc and Exchange Bondholder joint group,” she said, adding that the pair, which together hold around $21 billion of the total eligible bonds, could still block a deal.

“It’s a higher risk strategy to go ahead with a final offer without majority bondholder consent.”

The two groups did not respond to requests for comment.

Hardziej said he hoped the two sides would be able to reach an agreement given the “small difference” between the latest proposals.

“We hope that this is the last offer and we hope it works,” he said.

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