Argentina's bonds jumped to the highest this year after it struck a deal with its top creditors to restructure $65 billion of debt, setting the stage for the South American nation to emerge from its third default since the turn of the century.
The country's $3 billion of bonds, due 2048, climbed 3.2 cents to 46 cents on the dollar at 9.20 a.m. in New York, after the government said in a statement Tuesday that the deal with key creditors would provide "significant debt relief" and that interest and capital payment dates for some new exchange bonds were moved forward to reach the agreement.
While the statement didn't provide a net-present value for the pact, people with direct knowledge of the matter said the deal is worth about 54.8 cents on the dollar.
The agreement is the product of months of negotiations between the government and large investment firms including BlackRock, Ashmore Group and Fidelity Investments, and is the first step toward stabilizing a struggling economy. Inflation hovers near 45%, the peso has lost more than half its value in just a few years and GDP is set to shrink for the third consecutive year.
The major breakthrough came in an Aug. 2 call between Argentine Economy Minister Martin Guzman and BlackRock Managing Director Jennifer O'Neil, according to people familiar with the matter. The two sides discussed an agreement where bondholders would receive a value close to the midpoint of the two most recent offers from creditors and the Argentine government.
"The revised offer was close to what the largest creditors could accept, who in turn understood that the country's repayment capacity was limited," says Richard Segal, a senior analyst at Manulife Investment Management. "It's very beneficial to the extent it was reached quickly, far quicker than any previous time, and without much acrimony."
Under terms of the accord with the Ad Hoc Group of Argentine Bondholders, the Exchange Bondholder Group, the Argentina Creditor Committee and other investors, the country will extend its debt offer invitation until Aug. 24, while the settlement date remains Sept. 4.
The agreement paves the way for the country and its largest creditors to drum up the support needed to finalize a restructuring. Notes issued in 2005 and 2010 require sign-off from at least 85% of holders of all bonds affected to make changes, vs. the two-thirds or 75% threshold on securities issued more recently.
The deal moves up the payment dates on the new bonds to January and July from March and September, while capital payments begin as early as July 2024. Accrued interest will also pay out in a bond which will mature in 2029, earlier than what the government had previously offered.
Argentina also says it will change "certain aspects" of legal terms on the new instruments, known as collective action clauses.
Argentina's three main bondholder groups say they represent 60% of bonds outstanding from the country's previous restructurings — known as exchange bonds — and 51% of the outstanding global bonds issued from 2016.
With the debt deal with bondholders near complete, President Alberto Fernandez must now turn his attention toward the International Monetary Fund as the country looks to resolve issues with its senior creditor and replace the failed financing arrangement signed under Former President Mauricio Macri in 2018.
"With a lowered external debt burden for the sovereign, getting IMF funding should in principle be easier than it would otherwise have been," said Richard Briggs, an emerging-markets debt investment manager at GAM in London.
Mr. Fernandez must also focus on reigniting an economy that has been shuttered for months, and sparking growth as the country braces for one of its sharpest economic contractions on record. Bank of America analysts are forecasting a 13.5% decline in GDP this year, while Argentina's central bank economists expect a contraction around 12%.
The deal also marks the second debt breakthrough for a South American nation in a matter of days. Ecuador on Monday won the support of enough bondholders to restructure $17.4 billion in international debt, almost a third of its total foreign obligations. The country, which received backing from holders of over 95% of its bonds, said it will extend the deadline for creditors to participate in the debt offer until Aug. 7 to allow for holders who didn't vote yet.