Matching regime for the cancellation of Central Bank financing

During the year 2002 financial institutions increased their requirement for financial assistance (“redescuentos”) from the Argentine Central Bank (“BCRA”) significantly. This, in addition to the loosening of deposit withdrawal restrictions, made BCRA maintain a more flexible financial assistance policy with financial institutions.

Accordingly, on March 28, 2003 Decree No 739/2003, followed by implementing Communications “A” 3940 and 3941, established a “matching” regime for the cancellation of such BCRA’s financing. This decree has been recently supplemented by Decree No 1262/2003, dated May 22, 2003, which creates the ‘Bank Restructuring Commission’ (please refer to “Bank Restructuring Commission Created (the URSF)” on this edition of Marval News) and applies to those financial institutions undertaking a regularization or restructuring procedure pursuant to Sections 34 and 35 bis of Law No 21,526.

In order to gain access to this regime BCRA imposed certain conditions, one of which is to undertake a restructuring of the financial institutions’ external debt.

Financial institutions that want to adhere to this regime have a 30 business day term, beginning on April 30, in order to accept the matching regime

Amortization of the refinanced debt shall be made in the same number of installments as the public bonds that were transferred to the BCRA as collateral to the BCRA financing (up to a maximum of 70 or 120 if included within the cases of Decree 1262/2003), which in accordance with Communication “A” 3940 must consist of Government Secured Loans (Préstamos Garantizados del Gobierno Nacional) for 125% of the nominal amount of the BCRA financing. Those financial institutions that do not hold such type of indebtedness may complete the collateral with Government Secured Bonds (Bonos Garantizados por el Gobierno Nacional), or with those bonds issued pursuant to Decrees Nos 905/02, 1836/02 and 739/03.

Decree No 739/2003 provides that the balance of the BCRA financing shall be adjusted by the Coeficiente de Estabilización de Referencia (“CER”), which tracks consumer inflation, and accrues interest at an annual rate of 3.5%.

The financial institutions subject to this regime must prepay their BCRA financing when interest received under the collateralized bonds exceeds the annual 3.5% rate, and when amortization of principal of the bonds transferred to BCRA as collateral exceeds the installment amount set by the regulations. Notwithstanding, financial institutions may voluntarily prepay outstanding principal amounts in any interest payment date.

Finally, in order to gain access to this regime, financial institutions shall comply with regulations applicable to the restructuring of their foreign debt. They must restructure their external liabilities before December 5, 2003, once BCRA has authorized the restructuring conditions.

The request before BCRA shall be made before July 31, 2003 and shall provide evidence of: (i) compliance with the Communication “A” 3602 (external obligations information regime), (ii) information on the debt to be restructured, (iii) treatment of past due interest installments and of the interim interest payments, (iv) restructuring proposal to the creditors, (v) liquidity impact for the institution, (vi) participation of head office and affiliates in the debt to be restructured, and their commitment to compensate payments of the restructured debt with new five-year loans, (vii) commitment from the head office and affiliates to maintain credit lines that were registered as of March 31, 2003 until the last payment of the refinanced external debt.

Financial institutions that do not adhere to the described system shall cancel the debt on December 10, 2003.

This article is based on Argentine law as it is currently in force. Given the dynamics of regulations governing these issues we suggest verifying the legal framework from time to time, as the amendment of such regulations is a probable event.