September 3, 2014
Provinces halt foreign debt issuance
Uncertainty prevails as experts forecast cooldown until 2015Mendoza Governor Francisco “Paco” Pérez brought his province’s US$250 million debt issuance to a grinding halt yesterday, and several provincial authorities hinted they would also be putting the brakes on their external bond markets in the wake of the uncertainty left by the United States’ Supreme Court decision to not take up the country’s appeal in the long-standing battle with holdout bondholders.
“I think Buenos Aires province and Buenos Aires City will postpone (debt issuance) until 2015 to get better (interest) rates,” Puente investment bank head strategist Alejo Costa told the Herald.
As expected, Standard & Poor’s Ratings Services lowered its long-term foreign currency rating on Argentina to “CCC-” from “CCC+.” This was one of the concrete developments that seemingly led Mendoza Finance Secretary Marcelo Costa to claim “the conditions are not right to go out and take on debt abroad.”
Marcelo Costa confirmed the province home to the majority of Argentine winemakers will instead “seek out domestic credit” channels for the time being.
According to local newspaper Ámbito Financiero, bond projects worth US$150 and US$200 million in Río Negro, US$500 million in Buenos Aires province (BAP) payable in 10 years and similar plans in Chubut and Entre Ríos, have been put on ice.
“We’re not willing to pay or accept exorbitant rates, or repayment conditions,” Economy Minister Axel Kicillof said yesterday, apparently recognizing such a freeze-out as unavoidable as things stand, during his news conference to elaborate on President Cristina Fernández de Kirchner’s national broadcast on Monday night.
“We have to see how the government resolves the issue, but the sensation is that if a negative scenario is confirmed for bond (repayment), which would imply being in contempt of court, the provinces that do not need to roll over their debt — that is, Mendoza and Córdoba — will find it very difficult to issue (foreign debt),” Alejo Costa told the Herald.
Things certainly look headed in that “negative” direction, as the government announced yesterday it will strive to repay the 92 percent of bondholders who engaged in the restructurings of 2005 and 2010 in Buenos Aires, a move that would prevent payments from being frozen in New York, but which may trigger a default.
Indeed, Moody’s sovereign debt director, Gabriel Torres, said that paying restructured bondholders in the Argentine capital would be a default, “because Argentina must send the money under the conditions that were originally agreed to.”
Puente CEO Federico Tomasevich told the Herald that until the situation is entirely normalized, “Argentine companies, provinces, municipalities and even the country will face limits to issue debt abroad.”
Argentina has payments worth US$900 million of Discount bonds governed by New York law due June 30, and as of yesterday, the country cannot legally pay any bondholders without also paying the holdouts.
Foreign credit lines would have come as much needed relief for a 1.257-billion-peso primary budget deficit during the first quarter of 2014, closer to zero than the 1.458 billion in the red for the same period of 2013, although that was primarily due to a 12.361-billion peso injection from the Central Bank (BCRA).
As Marco Schnabl, from Skadden, Arps, Slate, Meagher & Flom, which represented the local Puente brokerage in its amicus submission, told the Herald: “The ‘technical’ in ‘technical default’ is bullshit, it’s like saying you’re technically pregnant. I assume it’s a term made up in Argentina to say: ‘Hey we’re willing to pay, but we can’t.’ It’s a default, period.”
CDS on the rise
Argentina’s credit default swaps (CDS) climbed again yesterday, as investors built in increased expectations of default on bonds it sells.
The one-year CDS contract, which protects bondholders against default, rose 19 percent to a cost of 7,200 basis points, highest since June 2013, with an upfront cost rising to 42.9 percent, up from 38.6 percent on Monday, according to data provider Markit.