YPF S.A. has a CHF300mn 3.75% senior unsecured bond due on 30 September. Despite the doubts surrounding its repayment, we are confident that the company will pay on time and in full. We spoke to YPF management and the company assured us that they have enough funds to do so. This is consistent with the Q2 19 cash on balance sheet reported by the company of cUS$1.3bn, and with the fact that YPF is one of a very small group of Argentina corporates that has never defaulted. We have a Hold recommendation on YPFDAR bonds.
YPF’s CHF300mn, 3.75% senior unsecured bond due 30 September is now rated B2/NR/CCC after the recent sovereign downgrades. It trades at cCHF97.734.
Due to the high volatility in the Argentinian market and the currency controls imposed by the government over the weekend, questions have been raised on whether the bond will be paid on time and in full. Adding to these concerns, a Bloomberg report said YPF Swiss franc bondholders face a tense final month to maturity “...as the country’s latest crisis casts doubt on whether they’ll get their money back,” the report stated.
Only a month before the bond is to come due, YPF’s bonds tumbled to cCHF0.96 from almost par, after Argentina’s government sought to delay sovereign payments. Price slides right before maturity are rare unless there is a risk of default (eg a Greek government "samurai" yen-dominated bond due July 2015 slumped after the country’s referendum on austerity earlier that month, although the government eventually repaid the bond on time.)
This sparked speculation that YPF’s repayment is no longer a given on account of the company’s close links to the government. Meanwhile, S&P and Fitch Ratings both downgraded YPF in August. Fitch cited the close linkage with the sovereign, which “can sometimes govern the company’s strategy and business decisions.”
We spoke to YPF management this morning and the company assured us that it will be making the payment “in time and in full”, as it has enough funds to do so. This is consistent with the Q2 19 cash on balance sheet reported by the company of cUS$1.3bn, and with the fact that YPF is one of a very small group of Argentina corporates that has never defaulted.
Management also told us that, given the many unpredictable developments in Argentina, things could change for the company; however, it reiterated that, as things stand today, YPF should have no difficulty making the full payment at the end of the month.
In our view, the worst-case scenario would be that YPF makes use of a grace period that would delay maturity until after the October elections, but, even then, the payment would still be made as there are protections for bondholders through a cross-default clause. We assign a very low probability to this scenario in any case.
In sum, we are confident that the company will pay on time and in full, but we also want to make sure that investors are aware of the risks given the number and speed of policy changes that are happening in Argentina.