Sovereign Debt in US Dollars Governed by Argentine Law: Deferral of Payments of Principal and Interest

1. Main provisions of the Decree

 

On April 6, 2020 Decree No. 346/2020 issued by the Argentine Executive was published in the Official Gazette. The Decree is issued within the framework of Law No. 27,541 of Social Solidarity and Productive Reactivation within the Public Emergency, which sets forth general provisions aimed at granting powers to the Argentine Executive to implement the public debt restructuring process. Please see our article Sovereign Debt Provisions published in Marval News for more details.

 

As stated in the preamble setting forth the reasons for issuing the Decree, the current situation requires debt policies which are part of an integral program aimed at restoring the sustainability of the public debt and recovering a path of sustainable growth. Within this framework, the Decree refers to the need of rearranging the financial program by means of the immediate deferral of maturities of short term commitments. The Decree also highlights that the impact of the coronavirus COVID-19 pandemic altered the steps and terms initially provided under the “Timeline of Steps to carry out the Process of Restoration of the Sustainability of the External Public Debt”. For more information related to the timeline, see our article Timeline for Public Debt Restructuring.

 

1. Universe of public debt instruments subject to the deferral of payments

 

The Decree provided for the deferral of the payments of interest and amortizations of principal of the national public debt instrumented by bonds denominated in United States Dollars (USD) issued under the law of the Republic of Argentina; and excluded from such deferral the instruments detailed in section (b) below. The Decree provides that the payments are deferred until December 31, 2020, or until the previous date to be determined by the Ministry of Economy.

 

Some of the instruments affected by this deferral –such as the Treasury Bills in USD or Letras del Tesoro en Dólares Estadounidenses (LETES USD)– had already been affected by the postponement of payments until August 31, 2020 provided by Decree No. 49/19. The payments under the rest of the bonds denominated in US Dollars governed by Argentine law (such as BONAR 2020, 2023, 2024, 2025 and 2027, and PAR and DISCOUNT bonds –these latter two issued within the framework of 2005 and 2010 debt restructurings–), had not yet been affected until this Decree.

 

2. Instruments exempted from the deferral: intra-public sector debt

 

The Decree excludes from the deferral certain intra-public sector debt instruments, that is, obligations within the Argentine government. The excluded instruments are the following:

 

1. Non-transferable Bills (Letras Intransferibles) denominated in US Dollars held by the Argentine Central Bank (Banco Central de la República Argentina or BCRA);

 

2. Bills (Letras) subscribed directly by the Sustainability Guaranty Fund (Fondo de Garantía de Sustentabilidad or FGS) of the Argentine Integrated Social Security System of the National Administration of Social Security (the "ANSES” after its acronym in Spanish);

 

3. Bills (Letras) issued by means of Decree No. 668/19 (see section (c) below in relation to Decree No. 668/19);

 

4. Treasury Bills (Letras del Tesoro) issued by means of Joint Resolution No. 57/19 of the Secretariat of Finance and the Secretariat of Treasury;

 

5. Treasury Bills (Letras del Tesoro) in USD issued by means of Joint Resolution No. 17/18 of the Secretariat of Finance and the Secretariat of Treasury;

 

6. “Natural Gas Programs Bonds” (“Bonos Programas Gas Natural”); and

 

7. Treasury Bills (Letras del Tesoro) in Guarantee issued by means of Resolution No. 147-E/17 of the former Ministry of Finance and Joint Resolution No. 32/18 of the Secretariat of Finance and the Secretariat of Treasury.

 

The Decree provides that payments of interest and principal of the non-transferrable bills held by the Argentine Central Bank (the “BCRA” after its acronym in Spanish) as well as payments of the bills subscribed by the FGS (this is, the instruments mentioned in points (i) and (ii) above) will be replaced at maturity by new public instruments which conditions will be defined.

 

3. Provisions related to Decree No. 668/19: deferral and inclusion of the FGS

 

Decree No. 668/19 had provided that, until April 30, 2020, the Argentine public sector and its agencies (all of its companies, entities and funds and/or assets of specific allocation which comprise the public sector, as provided in such decree), are only allowed to invest their transitory liquidity surpluses by means of the subscription of Bills (Letras) issued by the Argentine Treasury with maturity at a term not exceeding one hundred and eighty (180) days, except for the public banks and the Legislative and Judicial branches.

 

The Decree not only excludes from the deferral of payments the instruments issued within the framework of Decree No. 668/19, but also extends their validity until December 31, 2020 and includes the FGS within its scope. As specified in the reasons provided for issuing the Decree, this extension is implemented for the purposes of carrying out the sequential steps to achieve the sustainability of public debt in an integral manner.

 

4. Ministry of Economy’s powers

 

The Decree authorizes the Ministry of Economy to carry out the transactions of liability management and/or exchanges and/or restructurings of the instruments which payments are being deferred, with the aim of recovering and ensuring the sustainability of the public debt, which –as provided by the Decree– must be compatible with the recovery of the productive economy and with the improvement of the basic social indexes.

 

The Decree also authorizes the Ministry of Economy to issue the clarifying and complementary regulations necessary to implement the provisions set forth in the Decree.

 

2. Closing remarks

 

The deferral provided by means of the Decree does not apply to public debt instruments in Pesos nor to bonds issued under foreign law.

 

Regarding the debt denominated in Pesos, the Ministry of Economy is carrying out auctions to award new public debt instruments denominated in Pesos as well as exchange transactions within the regulatory framework provided by article 8 of Decree No. 193/20 which, among other provisions, authorizes to take the exchanged instruments at its technical value, calculated as of the settlement date of the relevant placement.

 

In the meantime, the restructuring process for the debt issued under foreign law continues and it is expected that the offer to the creditors will be launched within the next few days. For more information regarding debt restructuring governed by foreign law, please see our article Sovereign Debt Governed by Foreign Law: Definitions on Universe of Bonds and Maximum Amount Subject to Restructuring.