South America

A swift, firm rejection from the bondholder group considered to hold most sway in Argentina’s restructuring negotiations effectively closed the doors on any chance of success for the government’s first offer less than one business day after it had announced terms.

After making investors wait until the end of Friday's trading session that saw a strong bid for its bonds, Argentina finally proposed terms on its mammoth external debt restructuring. With early recovery rate estimates in the 30%-35% range, investors did not even wait until the weekend was over to express their discontent.

Bondholders are expected to fight a formal restructuring proposal from the Argentine government that should arrive on Friday and proposes heavy haircuts, say market participants. Argentina’s government appears ready to play hard ball.

Bond markets handsomely rewarded Peru on Thursday for leading the way in Latin America on economic policy reaction to the Covid-19 crisis, notching its lowest ever dollar funding costs. As Peru’s public treasury director said the deal was to increase already substantial liquidity buffers, Lat Am bankers were left hoping the result would encourage more reluctant issuers.

Argentina’s move to suspend domestic law bond payments for the rest of the year encouraged holders of its foreign law debt, some of who are beginning to spy value in the battered curve.

Rating agencies have continued their policy of taking swift action on Latin American governments as Standard & Poor’s removed its positive outlook from Brazil, the region’s largest economy, citing political opposition to President Jair Bolsonaro as a key reason.

For now, at least, Argentina appears to be asking its domestic bondholders to take the brunt of the government’s efforts to ease cashflow worries amid the Covid-19 crisis, providing upward momentum to foreign law debt prices.

As the initial government-imposed deadline for Argentina’s mammoth debt restructuring sailed by without a concrete offer to creditors having been put on the table, some analysts are worried that a hard default may be inevitable.

Two major rating agencies now have Colombia on the lowest rung of the investment grade ladder with a negative outlook after Fitch took action on the sovereign. Cries from former finance ministers that it was an inappropriate time for downgrades fell on deaf ears.

Emerging market bonds are trying to catch the same bid that has gripped investment grade markets, particularly in the US. Now, Latin America borrowers are scavenging once more for chances to print new issues.

Latin American corporates from across the rating spectrum are taking a range of measures to protect their liquidity in the face of the Covid-19 slowdown, but analysts suggest several defaults are inevitable as the region is hit on several fronts.

After its long-awaited debt sustainability analysis disappointed many investors and analysts, Argentina’s desire to solve its debt restructuring quickly may buckle under the pressure of its attempts to mitigate the impact of Covid-19.