Argentina's Buenos Aires province narrowly averted falling into default on Tuesday, saying it would make a US$ 277 million payment on a 2021 bond after creditors would not grant a last-minute approval to delay it.
Provincial governor, Axel Kicillof, said the province would use recently received resources from the local market to make the principal and interest payments on Feb. 5, the end of a 10-day grace period.
The province had sought to delay until May 1 a US$ 250 million payment originally due on Jan. 26, but fell short of the consent needed, Kicillof said at a news briefing after an extended deadline expired for bondholders to respond to the proposal.
The local government needed approval by holders of more than 75% of the debt, but only obtained more than 50%, Kicillof said, after repeatedly pushing back the deadline for consent and sweetening the offer in hopes of winning approval.
It was a very complex process, Kicillof said. We have decided to face ... the payment deadline with the province's own resources, without assistance from the national government.
The last-minute move to avoid default buoyed prices of over-the-counter sovereign bonds, which rose on average 1.8% on Tuesday. The 2021 bond, which had earlier fallen, reversed course to rise 6.5 cents on the dollar.
On Monday, the provincial government offered to make an up-front US$ 75 million capital payment on the bond, a conciliatory move to encourage holders of the debt to accept its proposal to delay the rest of the payment until May 1.
However, Kicillof said that while many bondholders supported the plan, he criticized one fund which he said held around a quarter of the debt and had requested to be paid the full capital in installments, which he said was not possible.
He said the province would begin a process to restructure its foreign currency debt in the coming days. What we need to do urgently is put in process a program that takes into account both external creditors and the provincial economy of Buenos Aires, he said.
The province, struggling to service its debts amid a wider economic malaise, is seen as a litmus test for larger negotiations to restructure around US$ 100 billion of sovereign payments facing new president Alberto Fernandez.
Argentina swapped US$ 164 million in sovereign bonds due this month for four new instruments maturing in August 2021, the government said on Tuesday, as it responded to a credit crunch by improving its debt profile.