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Buenos Aires Sweetens Deal for Bondholders Ahead of Deadline

Scott Squires and Jorgelina do Rosario
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Buenos Aires Sweetens Deal for Bondholders Ahead of Deadline

(Bloomberg) -- The Province of Buenos Aires improved the terms it’s offering bondholders if they agree to accept delayed payments, an about-face from the cash-strapped government after its first overture failed to attract sufficient support.

In exchange for pushing back the deadline on a $250 million principal payment, investors would receive an extra $7.2 million in interest, according to the offer revealed Monday. Previously, officials were asking creditors to sign off on the three-month delay without any additional compensation.

Argentina’s largest province surprised creditors earlier this month when it said it didn’t have enough money to make the payment due Jan. 26 amid the country’s economic crisis and a plunge in the value of the peso. Officials asked bondholders to agree to a delay until May 1 to avoid a hard default, then extended the deadline to accept the proposal to Jan. 31 after failing to win enough support.

The province needs at least 75% of the bonds’ principal to agree to the proposal to postpone the payment. So far, only 26% of creditors have accepted, according to a local media report. Buenos Aires is now offering a slightly better deal, but investors are concerned there’s no long-term plan for the province to shore up its finances.

“I don’t see an investor changing their position because of today’s sweetener,” said Joaquin Bagues, the head of strategy at Portfolio Personal Inversiones in Buenos Aires. “Without a fundamental argument backing it up, I don’t see it turning things around.”

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To make matters worse for investors, a provincial official who asked not to be identified said officials are also invoking a 30-day grace period for a $27.2 million interest payment originally due Jan. 26. The $250 million principal payment has a 10-day grace period before an event of default has occurred.

The $500 million of notes due in 2021 have tumbled since the province announced that it couldn’t make the payment, turning what had been one of the world’s best bonds for a time into one of the worst. The notes slipped 1.1 cent Monday to 51.8 cents on the dollar, deep into distressed territory.

The proposal from Buenos Aires comes as the national government is also opening talks with creditors and the International Monetary Fund as it seeks debt relief.

The province is unlikely to garner the support needed to change the terms of its debt, given the lack of clarity around President Alberto Fernandez’s plan to turn around an economy wracked by inflation and stagnant growth, according to Siobhan Morden, the head of Latin America fixed-income strategy at Amherst Pierpont in New York.

“How can you ask for an extension when you don’t offer a plan?” Morden said. “How can bondholders provide an extension when there is no plan?”

The province said the interest payment it’s offering bondholders would amount to about $28.70 per $1,000 of the deferred principal amount, and said it would distribute the money five business days after an agreement is reached.

“The province recognizes that it’s making an exceptional request,” it said in a statement.

(Updates to add local report of investor support in fourth paragraph.)

To contact the reporters on this story: Scott Squires in Buenos Aires at ssquires4@bloomberg.net;Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.net

To contact the editors responsible for this story: Carolina Millan at cmillanronch@bloomberg.net, Brendan Walsh

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