In a break with tradition that probably came as a welcome relief to the country’s creditors, who may have been gearing up for a 16-plus-year odyssey in what would have been the economically troubled South American nation’s third sovereign default in 20 years, Argentina has struck a deal with its creditors to restructure a $65 billion debt.
And in the spirit of the global COVID-19 outbreak, during which the IMF has urged developed nations to help ease the financial burden faced by poorer nations as it doles out billions of dollars in loans around the world, Argentina and its perennially troubled economy – which has been rattled over the years by spats with creditors following the severe economic mismanagement of reckless left-wing populists – will evade the brunt of repercussions for debt that was accrued long before COVID-19 emerged.
Committees representing Argentina’s creditors, based mostly in the US and Europe, have agreed to exchanged their defaulted bonds for new bonds under a settlement worth roughly 55 cents on the dollar. While most institutions and investors who have agreed to lend money to Argentina have lost out, a cadre of distressed investors who bought the Argentinian bonds for pennies on the dollar stand to make a handsome profit from the new bonds.
Per WSJ, major investors in Argentine bonds include Fidelity Management & Research Co., Monarch Alternative Capital LP, VR Capital Group, Greylock Capital Management and Pharo Management LLC.
Ecuador and Lebanon have already turned to the IMF for bailouts this year, and Argentina’s economy minister had threatened to start negotiations with the IMF if creditors didn’t come to a deal.
According to media reports, a willingness by the Argentine economy minister to accelerate series of payments due next year helped lead to the breakthrough with creditors. The payments were moved to January and July, from March and September. And here’s a breakdown of the new bonds and their amortization schedules.
- New USD, EUR bonds due 2030 to start amortizing in July 2024, mature in July 2030
- New USD, EUR bonds due 2038 will be offered in exchange for discount bonds, start amortizing in July 2027 through January 2038
- Bond included in the offer for unpaid interests will begin amortization in 2025 and mature in 2029
Markets rejoiced in the decision as Argentina’s “Century Bond”, the poster-child for the global thirst for yield, rallied to its highest price in five months.
For those who aren’t familiar with Argentina’s 20-year history of battling with international creditors, here’s a brief summary: In 2001, Argentina stopped payment on more than $80 billion in debt, the largest sovereign default in history at that time.
During negotiations, most bondholders settled for roughly 30 cents on the dollar, but a minority battled for full repayment, eventually winning a US court ruling that eventually led to another default in 2014 (the second in this series of three), before a settlement in 2016 that delivered enormous gains to the holdouts, including Paul Singer’s Elliott Management.
Having witnessed the ruthlessness and determination that Singer brought to bear over more than a decade of negotiations with Argentina just to get his money (or rather, the money lent by the original lenders) back, one would think investors approached the country with a heightened degree of scrutiny once it made its triumphant return to international capital markets.