Argentine bonds drop after Buenos Aires province seeks payment extension

BUENOS AIRES/NEW YORK - Buenos Aires bonds added to recent losses on Tuesday after the province asked holders for an extension on a more than $250 million payment due later this month, dragging Argentina’s debt lower as well.

The provincial amortization payment, due in two weeks, is tied to a January 2021 bond AR058449334=, which slid 3 points, for a near 18-point drop since last week, according to Refinitiv data.

“The overall purpose of the proposed amendments is to temporarily relieve the Province from certain of its short-term financial obligations by deferring the next principal payment date, originally due on January 26, 2020, to May 1, 2020,” a filing by the province said.

The Buenos Aires debt negotiation is seen by some as a trial balloon for how Argentina will handle the renegotiation of more than $100 billion in sovereign debt inherited by the administration of center-left President Alberto Fernandez.

Argentine national bonds were also trading lower, with the January 2028 benchmark 040114HQ6= down 1.5 points, according to Refinitiv data. Over-the-counter bonds RPLATC were down an average 0.7% on the announcement as country risk 11EJM rose 53 basis points to 1,872, as measured by the JPMorgan EMBI Plus index.

Buenos Aires Economy Minister Pablo Lopez said in an interview with a local radio station that he was confident the provincial government would obtain enough support from bondholders to postpone the payment. It needs consent by 75% of bondholders to go into effect.

“Seventy-five percent is a high threshold, but we are confident that what we are proposing is reasonable,” Lopez said to radio station La Red.

“With all the bondholders with whom we have been talking, they understand the situation we are going through and there is a general consensus that this situation requires work to recover the sustainability of the debt, which is in a situation that cannot last,” he added.

Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York, said in a Tuesday note to clients that the province’s payment delay might not bode well for holders of sovereign debt.

“There is no cross default between the sovereign and the provinces; however, a potential hard default for the Province of Buenos Aires raises the concern about cashflow stress and an orderly restructuring for any potential litigant risks or economic contagion from weaker domestic sentiment,” Morden said.

A spokesman for Economy Minister Martin Guzman declined to comment on the fall in Argentine national bonds on Tuesday.

Provincial bonds maturing this year and through 2027, including the January 2021 maturity, tumbled on Monday after Guzman confirmed the national government would not help Buenos Aires Province, Argentina’s largest, with the payments in an interview published over the weekend.

Fernandez reiterated that the national government would not bail out the province in an interview on Monday night.

Argentina has been spiraling into a debt crisis since 2018. Conservative former President Mauricio Macri was defeated by Fernandez on Oct. 27.

The Fernandez administration, which took office on Dec. 10, is in talks with bondholders and other creditors, including the International Monetary Fund.


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