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17 April 2020

Argentina: The broad outline of the government’s debt restructuring offer

The Economy Minister, Martin Guzman, presented yesterday some general guidelines for the debt restructuring
that the government will offer to holders of foreign-law bonds. Guzman’s presentation was short and he didn’t
disclose much information. The official offer will be presented today (17 April).

According to Guzman, the offer for restructuring of international-law Argentine government bonds will include:

• A grace period of 3 years (no capital or interest payments between 2020 and 2022)
• Coupon payments that will start in 2023 at 0.5% per year and then increase to a “sustainable” level over time
• An average coupon of 2.33%
• A principal haircut of 5.4%
• Tenor or the new bond(s) is yet to be announced

According to Guzman this offer will result in a 62% reduction in interest payments on the government’s currently
outstanding debt (a saving of $37.9bn) and a reduction in principal payments of $3.6bn savings due to the 5.4%
nominal haircut.

Total debt eligible for restructuring is $66.2bn comprised of foreign-law exchange bonds and global bonds
denominated in US dollars, euros and Swiss francs (in total 21 eligible bonds).

This is an aggressive offer, in our view. Even though we still don’t have some of the required critical information
such as how many bonds will be offered, which maturities, etc., the average coupon of 2.33% for the life of the
new bond(s) looks exceptionally low (the average coupon on eligible bonds to be restructured is approximately
5.9%) and will likely result in a low NPV for the payment stream that is on offer.

The low proposed coupon level in the new payment stream will, in valuation terms, hit long-duration currently
outstanding bonds more severely than short-duration bonds. This is surprising because we thought the
government would try to get as much as possible debt relief in the near term while treating the belly and long
dated bonds more favorably in order to maximize participation in the deal (with the objective of using CACs to drag
short-dated bond into the deal). The belly and long end of the curve account for more than 80% of total debt that
will be restructured (we define the belly and long end as bonds that mature after 2023). With the low proposed
coupon we suspect that holders of currently outstanding long-dated bonds with high coupons (in excess of 8% for
some bonds) will be reluctant to participate in the offered exchange.

We need more information to value properly the payment stream that is on offer but some investors assume a 10y
bullet principal payment and an exit yield of around 14%, which would be consistent with a present value of around
$32 (per $100 in nominal pre-restructuring claims). The longer the maturity the lower the PV assuming the same
other parameters apply; and the lower the exit yield, the higher the PV.

The terms set out by Guzman seems least punitive for short-duration bonds, but more detailed information will be
required for investors to make this assessment with confidence. In addition to how many bonds they will issue and
the maturities, we think it will be critical which exchange ratios will be used. Guzman mentioned a 5.4% haircut in
principal but some bonds could have larger haircuts than others. We don’t know yet if the government will treat
eligible bonds equally or not. For example, we don’t know if the government will offer the same payment stream in
exchange for all currently outstanding bonds, or if the new payment stream will be different for different currently
outstanding bonds. This, in turn, could have implications for the use of the CACs.
INTERNATIONAL TRADING SOLUTIONS

Our sense from interaction with investors is that the current exchange offer will not generate much participation
from bondholders. We expect negotiations to continue in coming days/weeks. The offer will expire in two weeks.

Daniel Chodos
ITS Fixed Income Trading Strategy
Phone: +54 11 4131-2707
daniel.chodos@credit-suisse.com
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