BCRA Ties Access to Payment of Financial Indebtedness to a Partial Restructuring

Communique “A” 7106 includes the obligation to file with the Argentine Central Bank (the “BCRA”, after its acronym in Spanish) a detailed refinancing plan for all foreign financial debts of the private sector with principal maturity dates between October 15, 2020 and March 31, 2021 as a requirement to access the Foreign Exchange Market.

 It appears that this regulation is linked to the decrease in the total volume of the reserves of the BCRA and the need to defer payments of the foreign financial indebtedness of the private sector so that this does not continue to impact on the level of reserves.

The requirement covers: (a) all foreign financial indebtedness of the non-financial private sector with a creditor that is not a related party of the debtor; (b) foreign financial indebtedness of local financial institutions’ own transactions, and (c) debt securities with public registration in Argentina, denominated in foreign currency issued by  companies of the private sector or by local financial entities.

The regulation is not applicable to indebtedness with multilateral financial institutions or official credit agencies or guaranteed by them or for an amount with principal maturities lower than USD 1,000,000 (one million US dollars) per calendar month. Nor does it apply to financing granted to exporters by local financial institutions or by a non-resident institutions different from the foreign importer settled in the FX market prior to the shipment; nor to the financing denominated in US dollars that are paid in Argentine pesos in the country.

The regulation requires that a) the net access to the exchange market will not exceed 40% of the amount of the original principal due; and b) the remaining principal has been, at least, refinanced with a new foreign debt with a 2-year duration.

In addition to the refinancing granted by the original creditor, new foreign financial indebtedness granted by other creditors that are settled in the exchange market by the client will also be admitted for such calculation. In the case of debt securities issued in foreign currency and publicly registered in the country, the calculation of new issues that comply with certain conditions set forth in the BCRA regulation will also be admitted.

The regulation raises multiple questions: The first is about the effect of the failure to submit the required plan. Preliminarily we understand that even though the regulation does not expressly say so, the failure to file the reorganization plan will result in the debtor being unable to access the FX market to repay the financing. However, the mandatory refinancing may trigger several considerations under the different laws that may apply to international financings.

Other significant aspects are linked to the reference that the regulation makes to "admit the calculation" of new foreign financing granted by "other creditors". In this regard, the regulation seems to point out that the new disbursements could totally or partially release the repayment of principal in accordance with the requirements set forth by the regulations. However, this conclusion is not expressly made, nor are the terms and conditions that such new financing must have, although it would be logical to conclude that it must not affect the purposes set forth by the regulation in terms of the deferral of absolute amounts due in the established period and the refinancing and/or new financing with a duration of two years.