BLK BlackRock Inc

By Ryan Dube and Andrew Scurria 

Argentina's government has reached an agreement with three groups of creditors to restructure its debt in a step that will grant significant debt relief to the country, the nation's Ministry of Economy said.

The agreement "will allow members of the three groups of creditors to support Argentina's debt restructuring proposal and grant the country significant debt relief," the ministry said.

Under the agreement, Argentina will change the payment dates for some new bonds, which won't lead to an increase in the overall amount of interest payable by Argentina but will improve the value of the proposal for creditors, it added.

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.

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 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 familiar with the matter 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."

--Pietro Lombardi, 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

August 04, 2020 07:45 ET (11:45 GMT)

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