By Hugh Bronstein and Walter Bianchi
BUENOS AIRES (Reuters) – Argentina’s debt restructuring deal received “massive” backing from creditors, Economy Minister Martin Guzman said on Monday, allowing the government to revamp 99% of the bonds it wanted to exchange and giving it some breathing room during an economic crisis.
Bondholders tendered 93.55% of the bonds in the $65 billion restructuring, Guzman said at a news conference. Months of tense negotiations, delayed deadlines, and modifications to its initial offer helped the government strike an agreement with most creditors.
“In recent days we have worked on the conditions of an offer that gained massive acceptance by our creditors as a result of the dialogue process in past months,” Guzman said.
A strong deal is a major win for Argentina, Latin America’s No. 3 economy and a major grains producer, as it looks to escape from default and revive an economy in its third year of recession and expected to contract around 12.5% this year.
Reuters reported on Friday, when the deal deadline closed, that the government was confident of high creditor support for the deal after winning over its main three creditor groups to a deal in principle earlier in August.
Center-left President Alberto Fernandez, who took power in December, said that Argentina had been in a “labyrinth” of debt that had now been solved. He thanked allies, including Argentine Pope Francis and Mexican President Andres Manuel Lopez Obrador.
“Now there are other challenges, the first of which is to reactivate the domestic market,” he said at the Casa Rosada presidential palace.
WHAT NEXT?
Guzman said the country now needed to turn attention to sealing a new program with the International Monetary Fund to replace a defunct $57 billion facility agreed in 2018, as well as tackling provincial debt amid various smaller regional restructurings.
He said the government planned to send a 2021 budget bill to Congress in mid-September, which would include a forecast for a primary fiscal deficit next year of around 4.5%. A new deal with the IMF is unlikely before March next year, said Guzman.
The 1% of bonds that did not meet collective action clause (CAC) thresholds of support for a restructuring indicates there were some pockets of holdouts on individual bonds, though Guzman told reporters this was not a major issue and would be resolved.
The bonds being restructured have CACs that mean the government needs a certain level of support to restructure them. Older 2005 indenture bonds require a combined 85% of creditor support, with two-thirds of support needed on each individual series.
The strong support and few holdouts stands in contrast to Argentina’s 2005 debt restructuring, which saw creditors holding around a quarter of bonds reject a deal, leading to over a decade of legal battles.
Roberto Geretto, economist at Banco CMF, said before the announcement that a high participation level was assured, and that the only doubt was if all the 2005 bonds would reach the threshold needed.
“In case the CACs cannot be executed on these bonds, there are two options: after a reallocation process some series of bonds may remain as holdouts, or become performing again if the government pays the unpaid interest,” he said.
(Reporting by Adam Jourdan, Hugh Bronstein and Walter Bianchi; Editing Richard Chang and Rosalba O’Brien)
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