Argentine Issuers Offer Dollars to Sweeten Deal in Debt Swaps

(Bloomberg) -- Argentina’s three latest bond swaps from companies and a province offer investors in the debt-laden country something they may find hard to resist -- dollars. The province of Mendoza, communications giant Telecom Argentina SA and state-controlled oil producer YPF SA are proposing cash payouts as they try to roll over almost $2 billion in debt maturing in the next few years.

“It seems counter-intuitive when the main goal is to preserve cash,” said Lorena Reich, analyst at Lucror Analytics in Buenos Aires. But, “it’s better to give some cash upfront and have investors accept the offer than the alternative of having to pay the full amount of the bond in 2021.”

As such, it’s a case of buying time. The cash upfront is also likely to appeal to creditors in a country renegotiating $65 billion in debt, bracing for its steepest contraction on record and implementing one of Latin America’s strictest lockdown to halt the spread of coronavirus.

While the two companies have ample cash balances, Reich added, their bonds have been pushed to distressed levels, meaning stronger incentives were needed to garner investor support in the swaps.

The Proposal

YPF’s offer would give investors $950 of new bonds and a $100 cash payout for every $1,000 of principal they exchange, if they agree to the deal by July 16. The cash payout falls to $50 for creditors who sign on after the early deadline expires.

Telecom Argentina, which opened a swap offer July 7, is proposing a $320 cash payout for every $1,000 in principal for investors who enter the swap early. That comes down to $250 after the early subscription period.

Mendoza province, likewise, is offering investors who tender before July 20 an early payment of $41.88 for every $1,000 in principal exchanged, an amount roughly equal to the coupon payment Mendoza missed on May 19, according to a report from Buenos-Aires based consultant Portfolio Personal Inversiones.

“Generally cash sweeteners can be attractive to creditors as they offer some optionality that only has a positive value,” said Guido Chamorro, co-head of emerging-market hard-currency debt at Pictet Asset Management in London, which manages $10 billion in developing-nation assets.

Still, some Mendoza bondholders rejected the province’s amended offer on Wednesday, according to an emailed statement. The province stopped servicing its debt in June after failing to reach agreement with creditors and missed a $25 million coupon payment.

In the meantime, the debt swaps are likely to continue until the national government reaches an agreement with its creditors.

“Corporates cannot easily issue new bonds until the Argentine government completes its restructuring,” Chamorro said. “It definitely doesn’t make it easy for healthy Argentinecorporates like YPF.”

By Scott Squires and Ezra Fieser

--With assistance from Jaqueline Ting Quesada