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Argentina

Argentina's Stoneway on path to default

  • Company ends tender and initiates forbearance discussions

  • This reinforces our Sell recommendation

  • Path to recovery might be lengthy and costly

Rafael Elias
Rafael Elias

Director, Latin America Credit

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Tellimer Research
9 March 2020
Published byTellimer Research

Stoneway Capital Corporation (STNEWY) has announced that it has terminated its previously issued consent solicitation regarding its 10% senior secured bonds due 2027 and that it is now in the process of initiating forbearance discussions with creditors.

We believe this is the first step for the company on a path to a possible full-blown default. With Siemens still in a legal dispute with Stoneway and given our belief that negotiations with Siemens will take precedence over negotiations with creditors, and with CAMMESA apparently still delaying payments to Argentine IPPs, this possible default scenario could result in very low recovery values for bondholders.

These factors reinforce our Sell recommendations, even at current levels, where we see STNEWY's US$588.913mn (of an originally issued amount of US$665mn, trading at cUS$35.252 (ALLQ) to yield c32.44% (g-spread 3.202bps, z-spread 3,543bps).

Further reinforcing our recommendation is the fact that the company has failed to return our calls and emails and appears to have cut itself off from all face-to-face, verbal and written communications with analysts and investors, and is now conducting communications solely through press releases on its website. This is the first time that we have been unable to reach Stoneway's management and, in our experience, that is never a good sign.

Our conclusions: 

  • The company could soon announce a default on amortisation and coupon payments; 
  • A restructuring plan will take months to be presented to bondholders; and 
  • The characteristics of that plan will be a function of the result of the Siemens dispute, the scheduling of the CAMMESA payments and other factors that we believe make it currently impossible for the company to determine its capacity to pay.

Stoneway's 27 February statement:

"BUENOS AIRES, Argentina, February 27, 2020 – Stoneway Capital Corporation (“Stoneway” or “the Company”) today announced it has terminated its previously announced consent solicitation with respect to its 10.000% Senior Secured Notes due 2027 (the “Notes”) on the terms and conditions set forth on February 13, 2020.

The Company also announced that it is engaged in ongoing discussions with an ad hoc committee of holders of these Notes representing more than 75% in aggregate principal, and that its indirect parent, GRM Energy Investment Limited, is engaged in ongoing discussions with the Mezzanine Lenders under a secured loan facility. The goal of these discussions is to reach consensual agreements on forbearances that would include commitment from the ad hoc committee and Mezzanine Lenders not to exercise their enforcement rights and remedies in an event of default.

The achievement of forbearance agreements with noteholders and the Mezzanine Lenders would give the Company the time and financial flexibility needed to determine the best path forward for the business. Stoneway hopes to develop and implement, through a consensual process, a comprehensive recapitalization plan that better aligns its capital structure with the current and anticipated receipt of payments from the Wholesale Electric Market Management Company (Compañía Administradora del Mercado Mayorista Eléctrico S.A. or ‘CAMMESA’) under its power purchase agreements, against the backdrop of the currently prevailing political and economic environment in Argentina.

Stoneway will provide an update in due course on the outcome of its negotiations with the ad hoc committee and the Mezzanine Lenders on the proposed forbearance agreements."