The Argentine Province of Buenos Aires (PBA) has been upgraded to CCC+ from SD with a stable outlook after it completed the exchange of 97.7% of its total debt of $7.2bn on September 3. The province has managed to restructure nine out of proposed eleven bonds with the consent of 90% bondholders holding ~$7.0bn of debt. The remaining two bonds have a holdout of $168.6mn. The restructuring has resulted in six new bonds with maturities extended to 2024-2037 from 2020-2028, a step-up in interest rates that average 5.74% vs. the original 7.5%, and a smoother amortization profile and reduces PBA’s debt payments by ~$3.5bn between 2021 and 2023. It represents roughly half of all restructured international debt by Argentine provinces. The issue level rating continues to be D on the two held-up bonds including the USD 10.875% 2021s and the EUR 4% 2020s as the creditors did not enter the exchange agreement. The resolution of the default on these two bonds is not likely to occur in the short term.
Though there is lower risk of PBA’s default in the next 12-18 months following the debt exchange, its debt will remain at elevated levels of ~65% of the province’s operating revenue in 2021. The province will continue to have low liquidity, especially as Argentina itself continues to struggle with its finances. The economic outlook for the province is weak, and is forecasted to rebound 6.9% in 2021 after contracting in 2020, with slow growth of ~2% in 2022-2023. The rating agency said, “We believe that structural lack of liquidity buffers remains a key risk to the creditworthiness of Argentine provinces. We estimate that the PBA’s free and readily available cash is currently low and doesn’t cover debt repayment for the next 12 months, which will likely be covered by regular cash flows and/or rolled over in the case of domestic debt.”