Bill to Restructure Argentine Sovereign Debt

1. Background: the Financial Program

 

On September 19, 2019, the Argentine Executive filed a bill with the Argentine Congress to implement the amendment of the terms and conditions of the sovereign bonds governed by Argentine law. The bill was submitted within the framework of the financial program announced by the Ministry of Economy, which comprises several measures aimed at the restructuring the public debt to relieve financial constraints in the following four years.

 

The first measure under the financial program announced by the Government is related to short-term financial indebtedness and was implemented by means of Decree No. 596/2019 (published in the Official Gazette on August 29, 2019, amended by Decree No. 609/2019). This decree deferred the maturity of the short-term bonds specified thereto (mainly LETES, LECAPS, LELINKS and LECERS) held by institutional investors by means of a staggered deferral, without modifying the principal amount, interest rates or currency of denomination. For more information, please see the articles published in Marval News # 197: (i) https://www.marval.com/publicacion/el-gobierno-anuncia-la-reestructuracion-de-la-deuda-financiera-de-corto-plazo-del-estado-nacional-13398&lang=en; and (ii) https://www.marval.com/publicacion/decreto-n-5962019-una-alerta-para-los-cds-13401.

 

The second measure is related to the situation of medium and long-term financial indebtedness, and affects bonds governed by foreign law as well as the bonds governed by Argentine law. With respect to bonds governed by foreign law, the Government intends to initiate a renegotiation procedure under the collective action clauses (CAC) included in such bonds and, within that context, invited international banks to send proposals to be discussed with investors. With respect to the bonds issued under Argentine law, the Government had announced its intention to submit a bill to Congress to voluntarily defer the maturity of the debt, neither affecting principal nor interest.

 

By submitting this bill, the Government implements its first step to carry out the voluntary deferral of the maturity of the bonds governed by local law for the purposes of obtaining a better maturity profile for the Republic of Argentina.  The Government has informed its intention to continue making the payments while the negotiation process takes place.

 

2. The Bill

 

The bill contains general provisions aimed at providing the Argentine Executive with the necessary tools to request and obtain the consents of the bondholders of public debt governed by Argentine law to modify its terms and conditions. The aim is to carry out a voluntary restructuring which, as announced, would only imply the extension of the terms, without haircuts of principal or interest.

 

1. Consent request procedure

 

The bill provides that the Argentine Executive will notify the bondholders that there is a consent request, specifying which terms and conditions it intends to modify, as well as the steps to be carried out to express their approval, including the terms and the formalities to be complied with. All the relevant information will be published in the website of the Ministry of Economy.

 

2. Majorities and binding effect

 

The request will be deemed approved if the consent of the following majorities is obtained, which will vary if there are bonds issued under a single series, or if there are bonds issued under two or more series gathered in the same consent request. The bill states that the term “series” means bonds that provide the same terms and conditions.

 

Single series: If the proposed modification affects the terms and conditions of a single series, it requires the consent of the holders of more than 75% of the aggregate principal amount at the time outstanding of that series.

 

Multiple series: If the proposed modification affects the terms and conditions of bonds of two or more series gathered under the same consent request, it requires both a global approval of more than 66.66% of the aggregate principal amount at the time outstanding of all the series and an individual series approval of more than 50% of the principal amount at the time outstanding of each series.

 

Exclusion of bonds held by the public sector and FGS: The bill provides that the holdings registered in the name of any entity of the Argentine Public Sector (comprised by the central administration and the decentralized entities, companies and corporations of the State and public entities, as provided by the definition of Section 8 of Law No. 24,156, as amended) and the holdings of the Security Fund for the Sustainability of the Argentine Pension System (Fondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino - ANSES) will not be considered as part of the issuance nor for the majority calculation.

 

In practice, if the consent is obtained it will result in the same effect as the CAC included in the bonds governed by foreign law: the bill provides that if the majorities are obtained, the modified terms and conditions will be binding for all holders of such bond, regardless of whether they consent to the modification or not.

 

3. Delegation in favor of the Ministry of  Economy

 

The bill provides the delegation from the Argentine Executive to the Ministry of Economy for the purposes of issuing the necessary and complementary regulations to implement the procedure of consent solicitation.

 

4. Public policy

 

The bill states that its provisions constitute public policy and that no one could claim irrevocably acquired rights.

 

3. Closing remarks

 

A voluntary procedure by means of the consent request of the creditors constitutes a new approach in our country to restructure the public debt governed by Argentine law. In recent years, the restructuring of the public debt governed by local law has been mandatory, without obtaining the consent of the bondholders. The exchanges carried out in 2005 and 2010 are an example of this. The bill does not provide what occurs if the majorities are not obtained, consequently that scenario remains open.

 

It is expected that the bill will be considered over the next few days by the Argentine Congress. If the bill is approved and the law is passed, the Ministry of Economy will have to determine the specific terms and conditions and the mechanisms for its implementation. If the law enters into force and the consents to modify the bonds are obtained, it will clear up the amortization schedule for coming years and restructure the portion of the debt subject to local law.

 

Meanwhile, the renegotiation process in relation to the bonds governed by foreign law under the CAC to be carried out by the Government with the investors should be closely followed.