Argentina extends debt swap deadline to 2 June – a positive sign
- Government set to miss today's grace period coupon payments
- Extension is shorter than we might have expected
- But this is a positive development if it signals the government is serious about engaging in goodfaith negotiations
This was probably widely expected by now and was our baseline. Rejection of the government's offer, default and continuing of negotiations, with an extended deadline, was our Scenario 3 in our report earlier this week.
And while this is the second extension, the tone seems better now than it previously was. The government's statement announcing the extension said:
"The Republic continues to receive investors’ views and suggestions over different paths to improve recoveries. The Republic is analyzing these suggestions with a view to maximizing investor support while preserving its debt sustainability goals. Argentina firmly believes that a successful debt restructuring will contribute to stabilizing the current economic condition, alleviating the medium and long-term constraints on Argentina’s economy created by its current debt burden and returning the country’s economic trajectory to long term growth. Argentina and its advisors intend to take advantage of this extension to continue discussions and allow investors to continue contributing to a successful debt restructuring."
However, one observation is that time is still tight. Previous restructurings show negotiations can take time, particularly if they involve consideration of state contingent payments, when it comes to ironing out assumptions, details and documentation (the EBG proposal includes a contingent coupon strip). And what happens if the government doesn't agree to such instruments? Does the implied loss of value mean that holders will want to reconsider their proposed bond terms, which could risk further delays?
Still, even if it does take longer to reach a deal, longer than 2 June, we think further extensions can be tolerated by bondholders, while refraining from legal action, if they believe in the government's commitment to goodfaith negotiations and an understanding that a satisfactory agreement is in sight.
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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...