Creditors split over Buenos Aires Province’s restructuring offer

Bondholders divided over a Us$7.1-billion debt restructuring proposal, signalling that La Plata still has work to do to emerge from default, despite announcement hailing breakthrough.

Buenosairesprovince’s creditors are now divided over a Us$7.1-billion debt restructuring proposal, signalling that Argentina’s largest province still has work to do to emerge from default.

The provincial Economy Ministry issued a statement early Wednesday that it agreed with its biggest investor, Goldentree Asset Management, and certain other creditors on terms and conditions. It said it would formalise a new offer to all its bondholders soon.

“This is key support for the launch of the final exchange proposal, which will provide significant financial relief for the Province,” said the portfolio, which didn’t specify the percentage of creditors that had accepted the new terms.

However, other bondholders then issued their own statement in the late afternoon, saying they weren’t part of the accord. That called into question how close the province is to successfully restructuring its debt.

The parties have been in talks for almost a year, seeking a deal that would minimise losses for investors while setting the local government on a sustainable financial path. Negotiations had yielded little progress as the province extended the same debt offer more than a dozen times.

Just over a month ago, bondholders cut off talks, putting any deal in jeopardy. Since launching its initial debt swap proposal last year, La Plata has extended the deadline for acceptance on more than 20 occasions.

Provincial Finance Minister Pablo López, who hailed the news as the first step towards “a definite solution,” said “shared efforts” had helped both sides reach a new “understanding.”

“This is a key step to recovering a sustainable debt profile, according to our capacity for payment and the enormous difficulties that we must face,” said the official.

The province’s bonds due in 2027 gained three cents to 48.6 cents on the dollar Wednesday, reaching the highest since August. The creditors’ statement calling the accord into question came out after most trading had ended for the day.

Those creditors, who didn’t identify themselves by name, said some members of their socalled Ad Hoc group didn’t support the agreement reached by Goldtentree. A representative for White & Case, which represents the creditor group, declined to comment.

The province’s bonds are the country’s largest stock of defaulted debt since the national government restructured US$65 billion last year and after about a dozen provinces struck agreements with creditors, from Jujuy in the north to Chubut in the south. Home to almost 18 million people and accounting for two-fifths of gross domestic product, Buenos Aires Province’s debt represents around half of the total dollar debt from regional governments.

Government House in La Plata said it intended to amend its offer to match the terms agreed to by Goldentree and said it will expire on August 13. The results will be announced three days later and its settlement is scheduled on August 20.

The proposal cuts total payments due by US$4.5 billion through 2024, and includes an average coupon of 5.6 percent, according to the province. The first interest payment is set in September and the earliest capital payment is in March 2024.

All consenting bondholders will receive 100 percent of interest accrued on existing notes, paid 10 percent in cash at settlement, and 90 percent capitalised into new notes. Creditors of eligible bonds will be entitled to receive either new dollar - denominated 2037 A bonds or new Euro denominated 2037 A bonds, and those who holddollar denomina ted 2035 bond sand Euro 2035 bonds can receive either new USD 2037 B or new Euro 2037 B notes.

Argentina is in its third year of recession, with inflation above 50 percent and unemployment over 10 percent. The country is also seeking to rework a Us$45-billion credit line with the International Monetary Fund.