June 1, 2020 / 1:36 PM / a month ago

Argentina, in default, faces bond volatility as restructuring deadline looms

BUENOS AIRES, June 1 (Reuters) - Argentine entered crunch time in debt restructuring talks on Monday, a day ahead of a deadline for bond restructuring talks that may be postponed as investors try to squeeze more money out of a country dealing with economic fallout from the coronavirus.

The government has set a Tuesday deadline for a deal to revamp about $65 billion in bonds issued during a 2017-2017 borrowing binge by the previous administration.

“Bondholders and the government are still far from an agreement,” said Gabriel Zelpo, director of Buenos Aires economic consultancy Seido

“Volatility is king. And we are moving in dangerous waters because the government is already in default and restructuring negotiations could turn more aggressive,” Zelpo added.

Argentine bonds rose 3.5% on Friday after the government and key bondholders exchanged new proposals. But with some creditors asking for a deal that would provide 60 cents on the dollar and the government offering about 45, Zelpo said he was not optimistic that a deal could be struck by Tuesday’s deadline, raising the likelihood that the deadline might get pushed back.

The government already extended the deadline once, from May 22. “Everything indicates there will be a new extension,” said a note from Mariano Sardans, head of local consultancy Patrimonios FDI.

The bonds in the current restructuring talks include a collective action clause (CAC), which means the government needs to meet a threshold of 75% to 85% investor support - depending on the individual bonds in question - in order to move ahead with comprehensive restructuring.

None of the three creditor groups currently in talks hold enough to trigger the CACs, but together they do have the ability to block a deal they collectively reject.

Reporting by Hugh Bronstein, additional reporting by Rodrigo Campos; Editing by Steve Orlofsky

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