April 19, 2024

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Strong reaction from the country's external creditors due to La Rioja's default

Strong reaction from the country's external creditors due to La Rioja's default

Like a contagion that never stops, the story between Argentina and its creditors today added a new chapter to the conflict. This is because today the Committee of External Creditors of the Province of La Rioja demanded a government Ricardo Quintilla To pay all its debts that matured in February, warning that, otherwise, it would demand the declaration of all its obligations in the event of a default and request further court action.

The firm that represents them, Quinn Emanuel Urquhart & Sullivan, has among its partners: denis Hrankitsky, The lawyer who managed to seize the Libertad frigate in 2012 when Argentina had not yet fully emerged from its 2001 default.

According to a statement from the group, they sent “today a message reserving rights to the governorate.” The letter urges the province to pay the remaining amounts it pledged to pay on February 24 within a 14-day period. The Group reserves all its rights, including the right to declare the entire principal of the green bonds outstanding and payable immediately or to take other measures, should the province maintain its current position.

The creditors noted that on February 24, 2024, “La Rioja Province failed to repay US$26.3 million of loan principal and interest due under its internationally issued green bonds” in a timely manner.

They noted that by adopting this position, “the province has become the only province in Argentina that has defaulted on its international debt since the 2020-2021 restructuring period.”

“While all other provinces with internationally issued debt have made their capital amortization and debt servicing payments on time, La Rioja stands out for not respecting its contractual obligations,” they complained.

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“This failure is particularly egregious in light of the fact that green bond funds were used to build a series of wind farms, one of which was later sold for US$171 million to Pampa Energía SA. The province clearly had the means to pay off its debt, but “He decided not to do it.”

After it defaulted, the province publicly commented that it would pay the interest (but not principal) due on February 24 “as a show of good faith.” Although good faith means full performance of contractual obligations (particularly in the case where holder funds are generated The bonds generated valuable revenue for the county), but bondholders have so far only received partial payment of the interest due.

Furthermore, “the District has not engaged in any type of dialogue with bondholders since its default and has not responded to the Ad Hoc Group (“GHA”) proposal to remedy the matter.”

The expert Sebastian Marel He warned: “The trial is at La Rioja’s door.” The lawyers they hire to defend themselves will be more expensive than the benefits they choose not to pay.

In February, La Rioja defaulted on a US$26 million debt, called on creditors to reschedule payments and then tried to postpone legal and financial retaliation by announcing that it would pay US$10 million in interest to refinance the remainder.

Ariel ParmigianiParque director Eólico Arauco at the time explained that issuing the green bond to build a wind farm, in order 200 million US dollars Primarily in February of that year and with 100 million US dollars More in August, with an interest rate of 9.75% annually, was not well received among investors.

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These bonds were issued in 2017 to build two renewable energy parks. Parmigiani explained that due to the delay, it was not possible to complete all the parks and the debts resulting from the influx coming from the parks were revealed.

“That is why this debt was restructured in 2021, and a consensus was reached with 99% of bondholders to refinance the principal maturities,” the Rioja official said.

As a result of this renegotiation,… The bonds now have an interest rate of 3.5% that will rise to 8.5% per year in 2028.

The province also did not adhere to this new agreement, perhaps due to the overall economic situation recorded last year.

Since the change of national government, Javier Miley and Governor Quintela have met several times, with the president accusing the governor of wasting joint engagement resources, while the province asserts that it has not received them.

“We don't keep anyone's money. If you spend money on recruiting Laly Esposito “Then he doesn't pay the police, that's not our problem,” Miley said. Given its financial situation, the Legislature of La Rioja Approval of the issuance of a quasi-currency worth $22.5 billion Bocade (debt cancellation bonds), 30% allocated to pay the salaries of public employees in the northwestern Argentine province.

A Bank of America report indicated that “La Rioja province is most affected by the reduction in discretionary transfers from the federal government, which said it plans to save 0.5% of GDP this year, as part of its goal to achieve a zero fiscal deficit target (after paying interest on the debt) in 2020 as part of its goal of reaching a zero fiscal deficit (after paying interest on the debt) in 2024.

Bova warning due to the situation in Rioja (Reuters/Tim Chung).

“Discretionary transfers from the federal government represent 11% of La Rioja Province’s total income, more than any other province that has issued debt in global markets, followed by Buenos Aires Province at 10%.”

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“The province of La Rioja faces a problem common to all other provinces: most of its debt is denominated in dollars. 82% of La Rioja’s total debt is denominated in dollars,” Bova stated.