Doubts about 2021. Large companies anticipate renegotiations of their debt

In recent weeks, the country's macro and micro economy appear to depend almost entirely on sovereign debt negotiations. But there is a sector in which the outcome of the negotiations has a direct impact: negotiable obligations. These are the corporate bonds issued by the country’s large companies to obtain financing. Telecom is the last firm to request an exchange of the instruments it issued in order to avoid a catastrophe in 2021, when multimillion-dollar sums expire.

In a statement sent to the National Securities Commission (CNV), the state body that regulates stock market activity, the telecommunications company announced that it launched an offer to "exchange" bonds that will expire on June 15 2021 (with a rate of 6.5%) for those maturing in 2025 and at a rate of 8.5%, with a nominal value of up to US$520 million.

This is the fourth swap launched by companies that were historically solid in their finances but, in the context of the pandemic and a somewhat disorderly macroeconomy, had to renegotiate their debts to avoid defaulting. The first is Aeropuertos Argentina 2000, which has already closed an agreement with its creditors; the second is Raghsa, the developer for buildings such as Le Parc; the third is YPF, and the last is Telecom.

For Lorena Reich, senior credit analyst/director LatAm for Lucror Analytics, the four proposed swaps are, for the moment, investor-friendly. "So far, the companies have shown goodwill, unlike in 2001 when some took advantage of the sovereign default to say that they could not pay," she says. Getting ahead is already a gesture, she adds.

Most of these swaps offer the investor an incentive, such as advance payments, or higher rates, if they decide to extend the maturity terms of the corporate bond. YPF, for example, wants to extend a $1 billion debt that matures in March next year. The company proposesd to offer the holders of that negotiable obligation (NO) a cash payment and a new series of ONs with final maturity in 2025.

What NOs are, and why there are corporate swaps

To obtain financing, firms can resort to NOs or corporate bonds. These are securities that give the investor a right to collect principal and interest.

A company in the red has two alternatives: restructure or default. Normally, restructuring is chosen when the debt is issued under foreign law and there is greater possibility of conflict in the courts coupled with an unfavorable resolution. Default is chosen when the NOs are issued under local law, as in the case of the household appliances firm Ribeiro.

While the negotiations for sovereign debt continue (the government presented the fourth "and last" proposal to creditors this week), the finances of several companies that have borrowed in dollars depend on the closing of this "macro" exchange and avoid default in order to move forward. "Many companies would not be able to face large maturities in 2021 if the market is closed; they would need the international market to refinance, given that the local market cannot absorb such large amounts," Lorena explains.

The coming year will be challenging for several companies that are in debt. Not only would negotiable obligations from Telecom and YPF be expiring, so would those from Mastellone and Pan American Energy, among others. Between the impact of the coronavirus and the local macroeconomy, there are no sectors that are sure winners in the corporate debt matter.

In any case, negotiable obligations are not the norm in Argentina. The consultancy firm Research For Traders estimates that the corporate credit for all companies in the international market is equivalent to 5% of GDP, while in Peru or Chile, that percentage amounts to 25%. Argentina does not have a leveraged private sector in the capital market.

By Sofía Terrile