Bill for the Restructuring of Sovereign Debt in US Dollars Governed by Argentine Law

1. Context and Background

On July 16, 2020, the Argentine Executive submitted a bill to the Argentine Congress which provides for the restoration of the sustainability of Argentina’s sovereign debt implemented by bonds issued under Argentine law. The Bill was considered by the Senate and approved on July 30 and will be discussed by the House of Representatives this week. The Bill was submitted to the Argentine Congress within the framework of the sovereign debt restructuring process under foreign law, which is still open. Argentina launched the exchange offer for such bondholders initially in April. Such offer was improved by the country through the amendment of its terms and conditions filed with the U.S. Securities and Exchange Commission (SEC) on July 6, 2020, which is open and has been extended until August 28, 2020. For more information on the proposal for the debt restructuring under foreign law, please refer to our article Argentina Improved the Exchange Offer for its Sovereign Debt under Foreign Law.

It should be noted that the instruments that are aimed to be restructured through this new local exchange offer provided in the Bill -that is, instruments denominated in US dollars or ‘dollar-linked' governed by Argentine law- were affected by the deferral of payments on principal and interest until December 31, 2020, as provided by Decree No. 346/20. In turn, some of these instruments –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. For more information on the deferral of payments that affects the eligible instruments under the Bill’s exchange offer, please refer to our article Sovereign Debt in US Dollars Governed by Argentine Law: Deferral of Payments of Principal and Interest.

In this context of deferred payments, the Ministry of Economy has implemented, since the beginning of the year, several specific transactions aimed at the voluntary exchange or conversion of some of these bonds originally issued in US dollars –or ‘dollar-linked'– for bonds issued in pesos, adjustable by BADLAR private rate or by CER. For example, the exchanges of LETES USD, the DUAL Bond (AF20) or the BONTE (TV21). Although these transactions implied the conversion of assets in USD to bonds in local currency, there are bonds in US dollars or dollar-linked bonds still outstanding for significant amounts which would be subject to the exchange set forth in the Bill.

 

 

2. Main Provisions of the Bill

 

The Bill contemplates the restructuring of the debt implemented in public instruments denominated in US dollars or dollar-linked bonds -issued under Argentine law. The restructuring is expected to be implemented through an exchange transaction, based on the Social Solidarity and Productive Reactivation Law No. 27,541, 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 for more details.

 

The Ministry of Economy had announced that it would give the bondholders of sovereign bonds in US dollars under local law the same treatment as the one given to the bondholders under foreign law. As stated in the submission message sent by the Argentine Executive, the Bill is in line with the terms offered to bondholders under foreign law.

 

a. Universe of Eligible Instruments for the Exchange

 

Eligible instruments for the exchange are sovereign bonds denominated in US dollars or dollar- linked bonds governed by Argentine Law, which includes LETES USD, LELINKs, a BONTE, DUAL BOND, BONAR 2020, 2023, 2024, 2025, 2027 and 2037 and PAR and DISCOUNT bonds –the two latter issued within the framework of the 2005 and 2010 debt restructurings. The chart included below in this article details the bonds subject to restructuring included in Annex I of the Bill.

 

b. Terms and Conditions of the Exchange Offer

 

The Bill provides the issuance of four new bonds in USD and an additional bond to pay accrued interest; and it also provides for the issuance of two new bonds in Pesos with CER adjustment plus interest (BONCER).

 

Eligible bondholders may choose the following new bonds in USD governed by Argentine law (L.A., after its Spanish acronym), depending on which eligible bonds they hold:

 

1. Holders of LETES and BONARs with shorter maturities may choose the new US dollar Step-Up 2030 - L.A.

 

2. Holders of LETES and all BONARs may choose the new US dollar Step-up 2035 - L.A.

 

3. Holders of DISCOUNT may choose the new US dollar Step-up 2038 – L.A.

 

4. Holders of PAR and all eligible bonds may choose the new US dollar Step-up 2041- L.A.

 

Holders of LETES and some BONARs may also choose the new bonds in Pesos BONCER 2026 2% or 2028 2.25% (these are instruments denominated in Pesos adjustable by CER plus interest). Holders of DUAL Bonds, BONTEs 2021 and/or LELINKS can only choose the new BONCER 2026 2%.

 

The new bonds in USD have the same financial terms as the bonds provided in the exchange offer under foreign law (same amortization schedule, incremental or step-up interest rate and maturity), except for the bond 2046, which is not available for the local exchange. The main difference is that the new bonds in USD contemplated for the local exchange are subject to Argentine law and, therefore, will not be issued under an Indenture.

 

The exchange ratio, the maximum issuance amounts of each new instrument and the other terms and conditions of the exchange offer are provided in Annexes II and III of the Bill, to which details we refer.

 

c. Accrued and Unpaid Interest under the Eligible Bonds

 

The treatment of the accrued interest is the same as the one of the debt offer under foreign law: it will be paid by means of the delivery of new bonds in US dollars due on 2030 at 1% (not in cash). If the exchange offer is accepted within the "Early Acceptance Term" interest is recognized until September 4, 2020. If it is accepted later, interest is recognized until April 6, 2020.

 

Those who choose BONCER 2026 or 2028, will receive additional instruments for this concept according to the ratios provided in the Bill.

 

 

d. All New Bonds have a Rights Upon Future Offers (RUFO) Clause Crossed with the Bonds Offered in the Exchange under Foreign Law

 

A novel aspect of the Bill is the inclusion of the Rights Upon Future Offers or “RUFO” clause for the new sovereign bonds under local law: if within five years from the date of the settlement of the new bonds under foreign law, Argentina voluntarily launches a better offer than what is contemplated in the eligible instruments governed by Argentine law or in the eligible bonds governed under foreign law, the improvement will be extended to the holders of the new instruments under Argentine law.  Those who have opted for BONCER 2026 or 2028 may participate in a new exchange for new bonds which will include the improved financial conditions of such offer.

 

As set forth in the prospectus supplement for new bonds under foreign law, this right is not triggered if the improvement is made in satisfaction of a final, non-appealable court order or arbitral award.

 

This clause provided in local bonds crossed to the bonds governed by New York law, implies that if Argentina improves the exchange of bonds under foreign law it must improve the exchange of bonds under local law.

 

e. Consequences for those Who do not Tender

 

The Bill provides that the bondholders who do not adhere to the exchange offer will continue with their payments deferred until December 31, 2021.

 

After the exchange has settled, holders may still tender their bonds by means of sending a notice to the Ministry of Economy, in which case accrued interest will be recognized only until April 6, 2020 (date on which Decree No. 346/20 providing for the deferral of payments, mentioned in point 1, entered into force).

 

f. Appointment of the Ministry of Economy as the Application Authority

 

The Bill appoints the Ministry of Economy as the application authority of the law, with powers to carry out all the necessary regulations aimed at implementing it.

 

g. Public Order – Entering into Force

 

This Bill states that the law constitutes public order. It will enter into force as from the date of its publication in the Official Gazette of the Argentine Republic.

 

3. Closing Remarks

 

The Bill was approved by the Senate and it is expected that it will be considered and discussed by the House of Representatives this week.

 

The exchange for local debt provided in the Bill does not include sovereign debt instruments in Pesos. Regarding the debt denominated in Pesos, the Ministry of the Economy continues to implement auctions to award new debt instruments in Pesos as well as exchange transactions under the regulatory framework set forth in Article 8 of Decree No. 193/20, which authorizes to take the instruments given in exchange at their technical value.

 

Meanwhile, the debt restructuring process under foreign law remains open. The level of adhesion to the offer will determine whether the thresholds required under the collective action clauses (CACs) provided in the bonds subject to that exchange are met or not.

 

The restructuring process entailed by these three categories of Argentine sovereign debt (bonds governed by foreign law, bonds governed by local law and bonds issued in Pesos) will have to be closely followed, since each one of them has its own features and particularities.