Results of Sovereign Debt Exchange under Foreign Law: 99% of Bonds Restructured

On August 31, 2020, Argentina announced the results of the invitation to exchange bonds governed by foreign law, which expired on August 28: 99.01% of the eligible bonds were restructured, as a result of having obtained a level of acceptance of 93.55%. The detail of the results are provided in the announcement of results published by the Ministry of the Economy on August 31, which can be found here.

Given that the majorities required under the collective action clauses (CAC) provided by the bonds have been obtained in the series which were restructured, the bondholders of such series who did not voluntarily enter were dragged along and exchanged mandatorily. Argentina excluded from the exchange those series in which the majority required under the CAC under such series has not been obtained (see sections 3 and 6 below for more details on this).

The results of the debt restructuring were informed within the context of the agreement reached between Argentina and the representatives of three groups of bondholders. On August 4, 2020, the Ministry of the Economy had announced the agreement in principle. Once the adjustments were agreed, the new terms and conditions of the invitation to exchange were approved by means of Decree 676/2020 of the Argentine Executive, published in the Official Gazette on August 16, 2020.

That was the second amendment to the restructuring proposal, and it was implemented within the framework of consecutive extensions to the expiry term of the invitation, in the context of several rounds of negotiations between the country and some groups of bondholders. The initial invitation to the exchange had been launched by Argentina on April 21 and was later improved by means of the first amendment on July 6.

Although Argentina had obtained the support of some groups of bondholders who publicly expressed their acceptance of the first improvement, there were other groups that expressed their disagreement. This led to continuing the negotiations and the agreement reached was reflected in the second amendment to the offer. For more information on the terms of the initial offer and the first amendment, please refer to our articles Argentina Launched an Exchange Offer for the Restructuring of its Sovereign Debt under Foreign Law and Argentina Improved the Exchange Offer for its Sovereign Debt under Foreign Law.

The new terms and conditions of the Argentine exchange offer are provided in Amendment No.2 to Prospectus Supplement published on August 17, 2020, and filed with the U.S. Securities and Exchange Commission (SEC); to which we refer for further information. This second improvement to the offer implied changes to some economic and legal terms and, given that it was the offer accepted by the bondholders, it is the one which provides the final terms which will govern the restructuring and the new bonds to be issued within this framework.

The main amendments implemented by the second amendment are described below.

 

1. Changes in certain principal and interest payment dates of the new bonds, without increasing the amount

The second amendment provides improvements in the payment dates of the new bonds to be issued in the exchange, in the following terms:

A. Semiannual payments: The interest and principal payment dates for the new bonds will be January 9 and July 9 -instead of March 4 and September 4.

B. New bonds to be delivered as accrued and unpaid interest consideration: The new bonds that will be delivered to the bondholders as consideration for the accrued interest will begin amortizing in January 2025 and mature in July 2029. Under the terms of the first amendment, it was provided that these bonds began amortizing in March 2027 and matured in 2030.

C. New 2030 Bonds: The New USD 2030 Bonds and New Euro 2030 Bonds will begin amortizing in July 2024 and mature in July 2030, with the first installment being in an amount equivalent to one half of each remaining installment. Under the first amendment, these bonds began amortizing in March 2025, in twelve equal semiannual installments.

D. New 2038 Bonds: The New USD 2038 Bonds and New Euro 2038 Bonds will begin amortizing in July 2027 -instead of March 2028- and mature in July 2038.

For further details on the terms of exchange of each eligible bond, please refer to the Amendment No. 2 to Prospectus Supplement and to the financial terms set forth in Decree 676/2020, as rectified by Decree 701/2020.

 

2. Improvements for holders of eligible bonds denominated in Euros (EUR) or Swiss Francs (CHF) who choose to receive U.S. dollar-denominated New Bonds

The first amendment had included the possibility of allowing holders with eligible bonds denominated in EUR or CHF to choose the new bonds denominated in USD or in EUR.

The second amendment modified the foreign exchange rate to EUR 1 = USD 1.1855 and CHF 1 = USD 1.0988 and EUR 0.9269, for the purpose of determining the principal amount of the USD -denominated new bonds to be received by each holder that elects this option. The previously provided exchange rate was lower, so the exchange ratio was now improved for the benefit of the bondholders.

Another improvement implemented for these bondholders with positions in EUR or CHF who choose to receive new bonds in USD is that such elections were excluded from the acceptance priority procedures and caps (that is, the maximum issuance amounts) applicable to the new USD 2030 bonds and new USD 2035 bonds; and the caps applicable to the new EUR 2030 bonds and the new EUR 2035 bonds were reduced as a result of such elections.

 

3. Restrictions on the re-designation mechanism

One of the most innovative aspects of the Argentine offer is the so-called re-designation mechanism. It would allow Argentina, at the closing of the offer or after the acceptance period, to exclude some series of bonds in which the required majorities have not been reached under the collective action clauses (CACs) to which the Argentina is subject to in the two Indentures (2005 and 2016) that govern the bonds subject to exchange.

By means of the re-designation, the country may exclude some series that would no longer be affected by the modification proposal and, with this, will be able to reach the majorities required under the CACs in the series that would remain as affected series. Within the framework of the negotiations, the parties agreed to address and regulate the re-designation mechanism, which resulted in the amendment of the provision that defined the circumstances under which the country can re-designate the series of bonds.

As provided in the announcement of results, Argentina implemented this alternative given that it excluded from the exchange the series in which it did not obtained the majority required under the CAC that govern such bonds. We refer to section 6 below for more details on this.

 

4. Restrictions on the subsequent use of the aggregation method for “uniformly applicable” or single tier modifications, or so-called Pac-Man strategy

Another request from the creditors’ groups was to include restrictions on Argentina's use of the aggregation method -provided in the 2016 Indenture- to conduct "uniformly applicable" modifications subsequent to successive future exchanges, a mechanism known as the "Pac-Man" strategy. The new text set forth in the second amendment implemented changes in the provision to determine the way in which Argentina must make use of the "single tier" method in future exchange offers.

Given that Argentina achieved to restructure all the bonds issued under the 2016 Indenture, it would not need to implement the Pac-Man strategy in this restructuring.

 

5. Expansion of the list of matters that qualify as “reserved matters”, which require higher majorities to be modified

By means of the second amendment, new matters were added which will be considered as “reserved matters”. This definition includes those aspects that, due to their relevance, require that the sovereign obtains higher approval thresholds for their modification, compared to other less relevant matters that require lower approval thresholds or majorities.

In addition to providing as reserved matters the main terms of the loan that are traditionally included in this clause (any modification to the date of payment, amount, interest rate, place of payment, applicable law and jurisdiction, among other provisions), at the request of the bondholders groups, the second amendment included as reserved matters any amendment to:

 

(i)    the percentage of bondholders necessary to declare the acceleration of the new bonds or to rescind or annul it;

(ii)   the re-designation clause;

(iii)  the Rights Upon Future Offers (RUFO) clause; and

(iv) the Indenture 2016’s clause that provides Argentina's restrictions to the subsequent use of the aggregation method for “uniformly applicable” modifications or single tier (Pac-Man).

 

6. Other significant aspects of the closing of the exchange: CACs triggering and re-designation

The settlement of the new bonds to be issued within the restructuring is scheduled for September 4, 2020 or as early as practicable thereafter.

Those bondholders who did not voluntarily enter the exchange but that, as a result of Argentina obtaining the majorities provided under the collective action clauses (CACs), were forced to exchange, will receive the longest bond (2046), which is excluded from the RUFO clause.

The announcement of results provides a detail of the level of acceptance for each affected series of eligible bonds which were exchanged.

The levels of acceptance resulted in Argentina obtaining the majorities required in all the series of bonds issued under the 2016 Indenture. Consequently, 100% of those bonds were restructured, regardless if the exchange was voluntarily accepted or not.

In relation to the bonds issued under the 2005 Indenture, Argentina informed that it excluded the following series from the list of designated series: USD Par 2038 Bonds II and III (XS0501195647; XS0501195720) and Euro Par 2038 Bonds II and III (XS0501195993; XS0501196025). Even when the announcement does not provide further details on this, the reason of such exclusion would be that Argentina would not have obtained the minimum threshold of 66 2/3% of the principal amount outstanding of such series for the CAC mechanism to be triggered for the purposes of dragging along all the bondholders comprised in such series. This implied the use of the re-designation tool by Argentina (see section 3). In the upcoming days, the intention of the country with respect to these excluded bonds will be known. As to the rest of the series of bonds issued under the 2005 Indenture, Argentina obtained the majorities required under the CAC.

Meanwhile, the exchange of bonds in USD subject to Argentine law is still open, and the results will be informed in the following days. For more information on the local exchange, we refer to our article Local Exchange: Argentina Launched the Exchange of Sovereign Bonds in US dollars Governed by Argentine Law.