Argentina Launched an Exchange Offer for the Restructuring of its Sovereign Debt under Foreign Law

1. Announcement of the offer: press release and Decree No. 391/2020

 

On April 17, 2020, a press release was published on the Ministry of Economy’s website in which Argentina announced an invitation to exchange its sovereign bonds governed by foreign law that are eligible for the restructuring for new bonds. The press release specified the guidelines of the main terms of the proposal, which were then approved, together with the offering documents by means of Decree No. 391/2020 issued by the Argentine Executive (published in the Official Gazette on April 22, 2020 and rectified by Decree No. 404/2020).

 

The Decree was issued within the framework of Law No. 27,541 of Social Solidarity and Productive Reactivation within the Public Emergency; and of Law No. 27,544 of Restoration of the Sustainability of the Public Debt issued under Foreign Law. This latter law, among other provisions, authorized the Argentine Executive to carry out transactions to manage liabilities and/or exchanges and/or restructurings of payments of interest services and principal maturities of the sovereign bonds governed by foreign law, in the terms of Article 65 of Law No. 24,156 of Financial Administration. Such article provides that the Argentine Executive is authorized to restructure the public debt as long as it results in an improvement in the amounts, maturities and/or interest of the original bonds. Please see our articles Sovereign Debt Provisions and Law for the Restructuring of Argentine Public Debt Governed by Foreign Law Passed, for more details.

 

The preamble setting forth the reasons for issuing the Decree also makes reference to two measures recently issued: Decree No. 250/2020, which provided the maximum nominal amount for the restructuring in USD 68,842,528,826 or its equivalent in other currencies; and Decree No. 346/2020, which provided the deferral of the payments of principal and interest of the sovereign debt bonds denominated in US Dollars governed by Argentine law until December 31, 2020. For more information related to these two measures, see our articles Sovereign Debt Governed by Foreign Law: Definitions on Universe of Bonds and Maximum Amount Subject to Restructuring and Sovereign Debt in US Dollars Governed by Argentine Law: Deferral of Payments of Principal and Interest, respectively.

 

The Decree:

 

1. provided the restructuring of the eligible bonds –detailed in Annex I of the Decree– by means of an exchange transaction and a consent solicitation to amend the original terms of such bonds;

 

2. approved the terms and conditions of the restructuring provided in the form of Prospectus Supplement, which is included as Annex II of the Decree and was already filed with the U.S. Securities and Exchange Commission (SEC); and

 

3. for the purposes of implementing the restructuring, it provided the issuance of new bonds denominated in United States Dollars (USD) and in Euros (EUR) for the maximum amount of up to USD 44,500 million and EUR 17,600 million, respectively, the financial conditions of which are detailed in Annex III of the Decree.

 

Lastly, the Decree empowers the Ministry of Economy to make any amendments necessary to the form of Prospectus Supplement approved by means of the Decree, to the extent that such amendments do not change: (i) the list of the eligible bonds for the exchange; (ii) the financial terms and conditions and, if applicable, the aggregate amounts of the new bonds to be issued; and (iii) the proposed exchange ratios.

 

Below are described the main guidelines of the exchange offer. For more information related to the terms and conditions, see the Prospectus Supplement published by Argentina (in English, and its translation into Spanish), and the Press Releases published by the Ministry of Economy on April 17 and 22, 2020.

 

2. Universe of bonds subject to restructuring and maximum amount – Collective Action Clauses (CAC)

 

The universe of eligible bonds that participate in the exchange offer is comprised by bonds governed by the laws of New York (United States) and by the laws of the United Kingdom, denominated in several currencies (US Dollars, Euros and Swiss Francs). Within the universe of the bonds they are the instruments issued within the framework of the prior restructuring, carried out by the exchanges of years 2005 and 2010 issued under the Trust Indenture of year 2005, and also the bonds issued later under the Trust Indenture of year 2016.

 

The first group of bonds issued under the 2005 Indenture includes the Par bonds and Discount bonds (in US Dollars and Euros). The bonds in US Dollars are governed by New York law, and the bonds in Euros are governed by UK law.

 

The second group of bonds issued under the 2016 Indenture includes the rest of the bonds, which are the “Bonos Internacionales de la República Argentina”: BIRAD (in USD) –including the Centenary bond– BIRAE (in EUR), and BIRAF (in Swiss Francs). All of these bonds are governed by New York law.

 

The distinction between the two groups of bonds is important given that the collective action clauses (CAC) provided in each of the Indentures to modify the terms and conditions of the original bonds require different majorities.

 

To make a restructuring of several series of bonds simultaneously, such as the proposed exchange offer, the 2005 Indenture requires the approval of a double majority: (i) 85% of the aggregate principal amount of the restructured series, plus (ii) 66 2/3% of the aggregate principal amount of each restructured series. On the other hand, the 2016 Indenture for that same scenario provides two options: (a) the “single tier” option, which requires the approval of 75% of the aggregate principal amount of all the restructured series combined without considering the majority of each single series, or (b) the “two tier” option, very similar to the 2005 Indenture but requiring lower majorities, given that it requires the approval of: (i) 66 2/3% of the aggregate principal amount of the restructured series, plus (ii) a majority of more than 50% of the aggregate principal amount of each restructured series.

 

One aspect to highlight of the terms of the offer is that it would allow Argentina to exclude series of bonds at the closing or after the acceptance period (expiration), by means of the mechanism that in the offering documents is called “re-designation”. In this way and according to the majorities that Argentina may reach for each series, Argentina may include or exclude certain series for the purpose of modifying the universe of restructured series and therefore modify the calculation basis of the majorities.

 

The bonds denominated in Yens –governed by Japanese law- were excluded from the exchange. According to the preamble of the Decree, the reason for leaving them out of the restructuring is that such bonds have financial conditions in terms of coupons and maturity that are consistent with the “Guidelines for the Sustainability of the Debt”, published by the Ministry of Economy.

 

According to the Ministry of Economy, the aggregate amount of the debt to be exchanged is of approximately USD 64,800 million. The chart included below in this article details the bonds subject to restructuring included in Annex I of the Decree.

 

3. Structure of the exchange offer

 

1. The ten new bonds

 

The eligible bonds may be exchanged for ten new bonds “Bonos Globales de la República Argentina Step Up”, five in USD and five in EUR, with maturities on 2030, 2036, 2043 and 2047 but with differences in the interest rates, the interest payments dates and the haircut over principal of the current bonds. All the new bonds will be issued under the Trust Indenture of 2016, and will be governed by New York law, regardless of the currency of denomination.

 

2. Main terms of the exchange offer

 

According to the terms of the offer, Argentina aims to make groups of bondholders by types of bonds (pooling). Below are described the main conditions of the exchange. For more details on the exchange terms of each eligible bond, we refer to the Prospectus Supplement and the financial conditions detailed in the Decree.

 

1. Haircut of principal (over the nominal value of the eligible bonds): each of the eligible bonds has a specific haircut according to the new bond to be chosen in exchange. In general terms, the exchange of Discount and Par bonds does not have a haircut, except if they are exchanged for the Bond 2047 in which case there is a haircut of 5%. On the other hand, for bonds under the 2016 Indenture, the haircut goes from 5% for the exchange of new bonds with longer terms (for example, bonds due 2036 and 2047), up to 12% (in US Dollars) and 18% (in Euros) if they are exchanged by the new bonds with earliest maturity (in 2030).

 

2. Interest rate: there will be no payments of interest under the new bonds for three years; and subsequently an interest will be paid at a step-up rate depending on each bond that goes from a minimum of 0.5% in 2023 for some bonds and reaches 4.875% for some of the longer term bonds. The bonds in US Dollars pay interest semi-annually and the bonds in Euros annually.

 

3. Maximum limits of issuance and acceptance priority for the exchange

 

The offer provides for each eligible bond an exchange option between two or three new bonds, depending on the specific eligible bond. There are maximum limits provided for the issuance of some new bonds and acceptance priority procedures for the exchange.

 

Both mechanisms (maximum issuance amounts and acceptance priority) simultaneously have the following goals: (1) that the eligible bonds that are due on a shorter term (this is, from 2020 up to and including 2023) are granted priority in their choice of bonds; and (2) that the medium term bonds (with maturities from 2026 to and including 2036) have priority over the long term bonds (with maturities from 2036 onwards –and the centenary bond is the longest, which matures in 2117-), for the exchange of new bonds that are shorter.

 

For the new bonds exchangeable for the Indenture 2005’s bonds (Discount and Par), this is, for the new bonds due 2039, 2043 and 2047, there is no maximum issuance amount, and the issuance of the necessary amount to cover the amounts exchanged is provided.

 

4. Closing remarks

 

The exchange offer was launched on April 21, 2020 and, in principle, will be open until May 8, 2020, unless Argentina extends this term or terminates the offer earlier.

 

As several groups of bondholders have issued press releases expressing their dissatisfaction with the restructuring terms offered so far, it seems probable that Argentina will need to improve these if it wants to reach the CAC majorities described above.  It remains to be seen if that will occur, and if so, how much more will Argentina offer to reach its goal.

 

Eligible Bonds under the Restructuring Proposal

ISIN	Name	Currency	Legislation
US040114GK09	PAR/U$S/T.FIJA/2038	USD	New York-US
XS0501195647	PAR/U$S/T.FIJA/2038	USD	New York-US
XS0501195720	PAR/U$S/T.FIJA/2038	USD	New York-US
XS0205537581	PAR/EUR/T.FIJA/2038	EUR	London-UK
XS0501195993	PAR/EUR/T.FIJA/2038	EUR	London-UK
XS0501196025	PAR/EUR/T.FIJA/2038	EUR	London-UK
US040114GL81	DISCOUNT/U$S/8.28%/2033	USD	New York-US
XS0501194756	DISCOUNT/U$S/8.28%/2033	USD	New York-US
XS0501195050	DISCOUNT/U$S/8.28%/2033	USD	New York-US
XS0205545840	DISCOUNT/EUR/7.82%/2033	EUR	London-UK
XS0501195134	DISCOUNT/EUR/7.82%/2033	EUR	London-UK
XS0501195308	DISCOUNT/EUR/7.82%/2033	EUR	London-UK
US040114GW47 – USP04808AA23	BIRAD/U$S/6.875%/22-04-2021	USD	New York-US
US040114GX20 – US040114GS35 – USP04808AC88	BIRAD/U$S/7.5%/22-04-2026	USD	New York-US
US040114GY03 – US040114GU80 – USP04808AE45	BIRAD/U$S/7.625%/22-04-2046	USD	New York-US
US040114HF05 – USP04808AJ32	BIRAD/U$S/6.625%/06-07-2028	USD	New York-US
US040114HG87 – US040114HE30 – USP04808AK05	BIRAD/U$S/7.125%/06-07-2036	USD	New York-US
XS1503160225	BIRAE/EUR/3.875%/15-01-2022	EUR	New York-US
XS1503160498	BIRAE/EUR/5.00%/15-01-2027	EUR	New York-US
US040114HK99 – USP04808AL87	BIRAD/U$S/5.625%/25-01-2022	USD	New York-US
US040114HL72 – USP04808AM60	BIRAD/U$S/6.875%/26-01-2027	USD	New York-US
CH0361824458	BIRAF/CHF/3.375%/12-10-2020	CHF	New York-US
US040114HM55 – USP04808AN44 – S040114HN39	BIRAD/U$S/7.125%/28-06-2117	USD	New York-US
XS1715303340	BIRAE/EUR/3.375%/15-01-2023	EUR	New York-US
XS1715303779	BIRAE/EUR/5.250%/15-01-2028	EUR	New York-US
XS1715535123	BIRAE/EUR/6.250%/09-11-2047	EUR	New York-US
US040114HP86	BIRAD/U$S/4.625%/11-01-2023	USD	New York-US
US040114HQ69	BIRAD/U$S/5.875%/11-01-2028	USD	New York-US
US040114HR43	BIRAD/U$S/6.875%/11-01-2048	USD	New York-US