Once more with feeling
In a year that saw EM countries struggle with their finances in the face of the Covid-19 pandemic, Argentina’s US$65bn bond restructuring stood out for its size, complexity and the precedents it set for future sovereign debt negotiations.
Markets hardly relished the prospect of another Argentina debt restructuring in early 2020 when it defaulted on its foreign currency debt for the ninth time.
So being able to complete the restructuring involving 21 securities in three different currencies with two separate indentures was a massive achievement, especially over just a five-month period between April and September.
That is not to say that the process was easy: Argentina and its advisers faced three different groups of creditors all with differing interests and bonds.
They included the old exchange bonds issued in the last restructuring and recently issued instruments carrying new aggregated collective action clauses designed to prevent a repeat of the holdout sagas of the past.
Big personalities on both sides of the table resulted in tough negotiations and multiple adjustments to terms before they cut a deal that resulted in 10 new bonds in US dollars and euros.
“Being able to successfully manage conflict resolution on such a large scale without litigation makes this a landmark transaction,” said Marcelo Delmar, founder of Mens Sana, which advised one of the bondholder groups.
Adding to the complexity was the outbreak of the pandemic, which forced negotiations to take place on crowded video calls as both sides tested the language of new CACs for the first time.
“It was very complex, high stakes, and we were thrilled with the results,” said Matt Radley, who heads Latin America liability management for Bank of America, which was dealer manager on the trade with HSBC. Lazard was financial adviser to Argentina.
Unexpectedly the CAC language in theory provided legal loopholes for Argentina to push through its proposal piecemeal without broad consent through so-called Pac-Man and redesignation strategies.
Facing considerable pushback from investors, the government agreed to add language to the new bonds that protected creditors from such moves.
“It created a precedent for subsequent restructuring globally,” said Alexei Remizov, head of Latin America DCM at HSBC.
Also in a reversal of past restructurings, no agreement with the International Monetary Fund was completed before negotiations started, aggravating creditors who thought the Fund, which is the country’s largest single creditor, was defending its own corner to the detriment of bondholders.
Argentina drove a hard bargain initially proposing average net present value of 39.70 but eventually compromised at 58.40.
It also stayed clear of big principal haircuts but managed to push out payments and cut average interest to 3% from 7%, saving itself some US$30bn in debt relief and giving vital breathing space to get its fiscal house in order. Until next time.
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