Argentina Creditors Clash With Top Officials on Debt Plan

(Bloomberg) -- The clash between Argentina's largest creditors and the nation's Ivy League-educated economy minister is going down to the wire.

With an initial deadline for an accord looming Friday, both sides are digging in. On Monday, the country's three biggest bondholder groups said in a statement that they can't support the initial $65 billion debt-exchange proposal because it forces them to “bear disproportionate losses that are neither justified nor necessary.” A day earlier, Economy Minister Martin Guzman wrote in an op-ed for the Financial Times that Argentina can't afford to pay creditors more.

“The time for illusions is over,” he said. “In the new Covid-19 world, we cannot continue to spend 20% of government revenues or more on debt payments — as some creditors have effectively asked. It is simply impossible.”

Creditors have criticized Guzman for taking an academic approach to the debt deal that's out of touch with the market. The 37-year-old minister earned a PhD from Brown University and is close to Columbia University professors Jeffrey Sachs and Joseph Stiglitz. Meantime, Argentine officials have blamed bondholders for stubbornly insisting on more favorable terms that will leave the nation even worse off, especially in the midst of a pandemic.

Last week, most of the nation's biggest creditors refused to attend video calls with Guzman, citing his lack of flexibility with the offer. Argentina's economy ministry said it's “disappointed” with the response of the three main bondholder groups.

“We have released our debt sustainability analysis and it is aligned with that of the International Monetary Fund,” the ministry said in a statement. “If bondholders have a different approach that would still meet those constraints, they should come forward with a specific proposal.”

On Monday, a group of exchange bondholders shot down the deal in a webinar, calling on Guzman to boost coupons or accelerate the payment schedule.

“You'll get new bonds with materially worse economic and legal terms,” said Dennis Hranitzky, an adviser to the committee, who heads Quinn Emanuel Urquhart & Sullivan's sovereign litigation practice.

Still, key creditors believe there may be some flexibility on terms as discussions continue, according to people with direct knowledge of the matter, who declined to be named because the talks are private.

Siobhan Morden, the head of Latin America fixed income strategy at Amherst Pierpont Securities, said the base case is the debt exchange proceeds with minority participation, setting the stage for another legal showdown.

“The two sides remain far apart,” she said.