Argentina strikes $65 bln debt deal to break deadlock

Argentina said on Tuesday it had reached a deal with three creditor groups to restructure $65 billion in sovereign debt, a breakthrough in talks the will help the country climb out of a damaging default and revive its recession-hit economy. The Economy Ministry said in a statement https://www.argentina.gob.ar/sites/default/files/press_release_roa_2.pdf it would adjust some payment dates and legal clauses to sweeten what had been touted as its "final" proposal made in early July, without increasing the overall principal or interest payout.

Argentina said on Tuesday it had reached a deal with three creditor groups to restructure $65 billion in sovereign debt, a breakthrough in talks the will help the country climb out of a damaging default and revive its recession-hit economy.

The Economy Ministry said in a statement https://www.argentina.gob.ar/sites/default/files/press_release_roa_2.pdf it would adjust some payment dates and legal clauses to sweeten what had been touted as its "final" proposal made in early July, without increasing the overall principal or interest payout. A major grain producer and once one of the world's wealthiest countries, Argentina fell into its ninth sovereign default in May and is headed for an estimated 12% economic contraction this year on the back of two years of recession.

"We resolved an impossible debt during the greatest economic crisis on record and amid a pandemic," President Alberto Fernandez said on Twitter. "Now we have the horizon clear." The Economy Ministry said it had "reached an agreement that will allow members of the creditor groups and such other holders to support Argentina's debt restructuring proposal and grant Argentina significant debt relief."

That included the Ad Hoc Group, Argentina Creditor Committee and the Exchange Bondholder Group, a trio that united last month to oppose a previous government offer, sparking a deadlock that threatened to derail a deal. The groups said in a joint statement on Tuesday they were pleased to have reached an "agreement in principle" with Argentina that would provide debt relief and lead to renewed access to international capital markets for Argentine issuers.

"The agreement is a good outcome for all participants and delivers an offer that all creditors should support," they said. The ministry said it would extend the deadline for creditors to formally accept the new deal to Aug. 24. It had been set to expire on Tuesday.

BOND MARKETS CHEER The agreement helped lift sovereign bonds an average of over 8% following a rally on Monday in anticipation of a deal.

The country had been at an impasse with creditors, which included big-name funds such as BlackRock and Ashmore , over revamping the debt. Investors were cheered by the announcement of an agreement.

"It is something that the main bondholder groups can accept," said Graham Stock, an emerging markets strategist at creditor BlueBay Asset Management, who said the average net present value of the new offer was 54.8 cents on the dollar. "The economic situation in Argentina is very challenging and a key focus for us was to make sure there was sufficient cash flow relief for the government in the short-term to help the government address the economic fallout from coronavirus."

Riccardo Grassi, risk manager at Mangart Capital Advisors, said the two sides had reached a "political compromise." "I wouldn't say creditors are happy, but we are happy that this thing has been resolved," he added.

PAYMENT DATES CHANGE As part of the deal, the government said it would adjust some payment dates for the new bonds set out in the offer to raise the proposal's value.

The offer will also adjust certain legal aspects of so-called collective action clauses (CACs), which determine how future changes can be made to bond agreements. These had become a key point of contention in the talks. Some bondholders had feared Argentina would try to use the CACs to adopt a "Pac-Man" strategy of attempting to get them on board one at a time.

Carlos de Sousa of Oxford Economics said the changes and the accord with major creditors meant a deal was almost in the bag. "It should be straight forward now to achieve the required qualified majorities for a successful debt exchange," he said.

Under the deal, payment dates on the new bonds will be Jan. 9 and July 9, instead of March 4 and Sept. 4. The new bonds will begin amortizing in January 2025 and mature in July 2029. Fernandez and Economy Minister Martin Guzman had been adamant that Argentina was unable to improve the offer made in early July, though people close to the talks said there could be wiggle room to sweeten the offer.

Argentina struck a $57 billion loan deal with the International Monetary Fund in 2018 and has said it will seek a new program with the fund after it wraps up its talks with private creditors. "A very significant step. Look forward to a successful conclusion in the interest of all," IMF head Kristalina Georgieva said in a congratulatory post on Twitter.

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