September 19, 2020

The richest province in Argentina borders the dangerous cornice of “default”



If the necessary consent to defer payment of a debt bond is not achieved in the next few hours, the province of Buenos Aires, the richest and most populous in Argentina, could fall into a complex scenario of cessation of payments.

The district, governed by the Kirchnerist Axel Kicillof – Minister of Economy of Argentina between 2013 and 2015, during the Government of Cristina Fernández – extended this Monday, for the third time, the pause so that the holders of the BP21 bond give their endorsement to postpone until May a maturity of capital that operated on January 26.

If the province does not obtain the approval of the bondholders who represent at least 75% of the outstanding capital of the BP21 and does not regularize the payment of the maturity for 250 million dollars before the end of next Wednesday, it would fall into a default (cessation of payments) technician.

When launching the request for consent to creditors on January 14, Kicillof, who had assumed the provincial Executive in December, said that his province had “willingness to honor the commitments” but warned that “at this time there is no ability to do so “.

The financial situation of the district is in line with the high indebtedness of other provinces and the Argentine State itself, whose new Government, under the command of the Peronist Alberto Fernández, seeks to renegotiate the debt with its private creditors and the International Monetary Fund.

The province must face up to the end of 2023 debt maturities of 8,800 million dollars, of which 2,900 million correspond to 2020.

The BP21 is a dollar bond issued in 2011 under New York law and includes a “cross default” clause whereby if the title falls into default, all other bonds issued by the province that include This clause can also be considered in cessation of payments.

There is also the so-called “acceleration clause”, whereby, in the event of a cessation of payments – including a “cross default” event – creditors with at least 25% of the debt capital issued may require the province to pay them in advance all the maturities of principal and interest on those securities.

According to the latest official data available, Buenos Aires debt at the end of last September amounted to 11,263.2 million dollars.

Of that total amount, some 6,058 million correspond to dollar bonds issued under international law.

The new deadline for BP21 holders to give their consent expires early this Tuesday.

The provincial Executive still has room to extend it again, although not for much longer and, in a last-minute attempt to add accessions, on Monday he improved his offer to creditors.

“By virtue of the accession of a large number of bondholders and exchanges held with institutional funds that have not yet given their consent, but showed good will and understanding of the provincial situation, we have modified the proposal to include in this instance the payment of the 30% of the maturity of the capital involved whose postponement is to be obtained, “the Buenos Aires Ministry of Finance and Finance announced today.

Who is in charge of that portfolio, Pablo López, said that, if the proposal is accepted, that payment “will be made with provincial resources, which are scarce.”

“Tomorrow will now be a new key day for the province, but it is understood that if it loosened with this request from some creditors (to improve the proposal) it is because they have secured 75%. We will see … It would really be a strong strategic mistake to complicate the sovereign scenario for 250 million dollars, “said Santiago Abdala, director of Portfolio Personal Inversiones.

According to the consultant LCG in a report, an eventual scenario of cessation of payments in the province of Buenos Aires would activate the acceleration clauses on Buenos Aires bonds, but not on the sovereign titles of Argentina.

“Anyway, set a bad precedent to begin the process of restructuring the national public debt,” said LCG.

The saga of Buenos Aires debt has already impacted on the complex scenario of Argentine debt, putting additional “noise” in the bond market, highly sensitive to news and rumors about the evolution of the process to defer the payment of BP21, and Climbing the Argentine country risk index, which went from 1,847 basis points scored on January 14 to 2015 on Monday.

Natalia Kidd

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