Argentina Nears $65 Billion Restructuring Deal With Bondholders -- Update

Argentina's government is finalizing an agreement with a group led by BlackRock Inc. (BLK) and a handful of large U.S. investment firms to restructure about $65 billion in foreign debt and resolve the country's third sovereign default in 20 years, said people involved in the talks.

Committees representing investors holding the bulk of Argentina's external debt have agreed to exchange their defaulted bonds for new securities under a settlement worth nearly 55 cents on the dollar, these people said.

If signed, the deal would avoid the fiery litigation that marked Argentina's 2001 default while supplying a much- needed boost for Latin America's third-largest economy after it was laid low in 2018. The settlement would add to concessions made by private lenders in the U.S. and other large economies to borrowers in the developing world facing an economic downturn intensified by the new coronavirus.

Many creditors that bet on an Argentine economic resurgence in recent years lost money when the government took steps toward restructuring and bonds plummeted in value. But some investors bought in at depressed prices and stand to make profits on the restructuring, people familiar with the matter said.

Major Argentine bondholders include Fidelity Management & Research Co., Monarch Alternative Capital LP, VR Capital Group, Greylock Capital Management and Pharo Management LLC.

"It prevents a really disastrous impasse that could have locked Argentina out of credit markets potentially for years," said Benjamin Gedan, an Argentina expert at the Wilson Center, a Washington policy group. "This scenario of a prolonged dispute that would have left Argentina once again isolated financially would have been a worst-case scenario for everyone involved."

The creditors accepted a deal ahead of a Tuesday deadline set by the government. Economy Minister Martín Guzmán had said the government wouldn't improve its offer and would start talks with the International Monetary Fund on refinancing a bailout loan if there wasn't a deal with bondholders.

Officials at the Economy Ministry and president's office said Monday they couldn't confirm an agreement had been reached. Argentina owes $44 billion to the IMF, which has said the country's debts are unsustainable and projected a nearly 10% economic contraction this year.

Economic contraction, spiraling inflation, a hard-currency squeeze combined with the coronavirus pandemic made Argentina the largest of several sovereigns to seek concessions from creditors this year, joining Ecuador and Lebanon as lockdowns and travel restrictions roiled the global economy.

Slashing the country's debts has been a priority for President Alberto Fernández, a member of the nationalist Peronist movement who took office in December. The country has been mired in a recession since a 2018 currency crisis while facing double-digit inflation.

Argentina has spent the bulk of the last two decades quarreling with investors after it stopped payment in 2001 on more than $80 billion in debt, the largest default in history by a sovereign at the time. Most bondholders settled for roughly 30 cents on the dollar while a minority battled for full repayment, eventually winning U.S. court rulings that led to another default in 2014 before a settlement in 2016 that delivered enormous gains to the few determined holdouts.

Debt markets soon welcomed the country back, gobbling up 100-year bonds, the first such issuance of so-called century bonds by a junk-rated government.

Last year's election of Mr. Fernández fueled concerns about a prolonged dispute with creditors after he announced plans to restructure tens of billions of dollars in debt he inherited from his predecessor, Mauricio Macri.

Mr. Fernández's powerful vice president, Cristina Kirchner, who governed from 2007 to 2015, often blamed Argentina's economic troubles on the IMF and foreign creditors, which her government referred to as "vulture funds." But Mr. Fernández, a more moderate Peronist, was more willing to sit down with creditors, analysts say.

Argentina's dire economic outlook, worsened by a pandemic that has caused a surge in poverty in the vast working- class neighborhoods that surround Buenos Aires, likely helped the two sides reach a deal, said Nicolás Saldias, a political analyst and expert on Argentina.

"I think there certainly was a role played by Covid-19 in reducing the expectations of creditors of what is reasonable and what is acceptable almost morally in this context," said Mr. Saldias. "For the creditors, it would look bad if you are asking in the middle of the worst economic recession since the Great Depression and a pandemic which is killing hundreds of people...in the country for an exorbitant amount of money."

Negotiations were difficult at times, reflecting disagreements among bondholders over the size of discount they were willing to take. Differences reflected factors including the different prices at which various creditors purchased Argentine bonds.

BlackRock (BLK) sought earlier this year to broker a deal but faced resistance from certain creditors. Throughout the process, bondholders were aware that they were the subject of critiques in the local press and from economists that they were taking advantage of Argentina. Over the weekend, creditor groups started to coalesce around a deal. They felt reaching agreement quickly was preferable in light of the economic damage wrought by the pandemic, two people said. Some believed the IMF would be less willing to be generous to creditors if the spread of Covid-19 hurt the Argentine economy further.

Argentina could now face more difficult talks with the IMF over restructuring its bailout from the fund, which will likely pressure the government to pass economic reforms that are unpopular in the country and opposed by the ruling Peronists.

"It is going to be really politically dangerous in Argentina," said Mr. Saldias. "The IMF's board is not just going to roll over and give Argentina whatever it wants."

--Alexander Gladstone and Dawn Lim contributed to this article.

Write to Ryan Dube at ryan.dube@dowjones.com and Andrew Scurria at Andrew.Scurria@wsj.com


  (END) Dow Jones Newswires
  08-03-20 2104ET
  Copyright (c) 2020 Dow Jones & Company, Inc.

News, commentary and research reports are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.