Buenos Aires averts default, pledges bond payment after delay fails

Buenos Aires averts default, pledges bond payment after delay fails

04/02 - 16:12 - Argentina’s Buenos Aires province narrowly averted falling into default on Tuesday, saying it would make a $277 million payment on a 2021 bond after creditors would not grant a last-minute approval to delay it.

Provincial governor, Axel Kicillof, said the province would use recently received resources from the local market to make the principal and interest payments on Feb. 5, the end of a 10-day grace period.

The province had sought to delay until May 1 a $250-million payment originally due on Jan. 26, but fell short of the consent needed, Kicillof said at a news briefing after an extended deadline expired for bondholders to respond to the proposal.

The local government needed approval by holders of more than 75% of the debt, but only obtained more than 50%, Kicillof said, after repeatedly pushing back the deadline for consent and sweetening the offer in hopes of winning approval.

“It was a very complex process,” Kiciloff said. “We have decided to face... the payment deadline with the province’s own resources, without assistance from the national government.”

The last-minute move to avoid default bouyed over-the-counter sovereign bonds, which rose on average 1.8% on Tuesday. The 2021 bond however dipped 2.5 cents on the dollar.

Buenos Aires, Argentina’s most populous province, faced slipping into default if it could not strike a deal with bondholders or make the full payment before Wednesday.

On Monday, the provincial government offered to make an up-front $75 million capital payment on the bond, a conciliatory move to encourage holders of the debt to accept its proposal to delay the rest of the payment until May 1.

However, Kicillof said that while many bondholders were behind the plan, he criticized one fund which he said held around a quarter of the debt and had requested to be paid the full capital in installments, which he said was not possible.

He said the province would begin a process to restructure its foreign currency debt in the coming days.

The province, struggling to service its debts amid a wider economic malaise, is seen as a litmus test for larger negotiations to restructure around $100 billion of sovereign payments facing new Peronist President Alberto Fernandez.

Argentina’s economy ministry will hold an important debt swap auction later on Tuesday, hoping to exchange dual currency bonds maturing on Feb. 13 and delay in part an expected payment of over $1.6 billion.