In the 99 years since it was founded to pump the oil fields of Patagonia, the Argentine oil company YPF SA it has been plagued by countless booms and busts. When world oil markets weren’t collapsing, Argentina was mired in a debt crisis that was wreaking havoc on the nation’s finances.
However, the company had never been in the position of large-scale default of any kind. Until, it seems, now. The news came in a strange way: in the dead of night, Officials from state-owned YPF sent a press release presenting a debt swap plan that would allow them to control losses.
Implicit in his statement was a threat that operators immediately understood: Failure to reach a restructuring agreement could lead to a total suspension of debt payments. The next morning, they began to frantically unload the bonds from the shale driller. Today, about two weeks later, securities are trading at just 56 cents on the dollar.
Creditors, including BlackRock Inc. y Oaktree Capital Group de Howard Marks, are preparing for a show of hands negotiations four months after closing a restructuring agreement with the Government that marked the third sovereign default of the country, only in this century.
Oaktree and BlackRock would be among YPF’s bondholder groups
YPF’s fall underscores how hard the pandemic has hit, both the global oil industry and Argentina’s eternally reeling economy. Dollars are now so scarce in Buenos Aires that the Central Bank refused to allow YPF to buy the full amount it needed to pay the notes due in March.. That was the immediate cause of the restructuring announcement.
A broader view reveals a steady decline in the company’s finances since the government renationalized it in 2012 and It forced it to increase payrolls, keep domestic fuel prices low, and skimp on investments, causing oil and gas production to decline for four consecutive years.
The task becomes more urgent as the South American winter approaches and YPF may be unable to meet domestic gas demand, which means that Argentina would have to boost imports, and shell out the precious currency, amid a global rise in prices.
“The central bank’s decision really put YPF between a rock and a hard place,” said Lorena Reich, a corporate debt analyst at Lucror Analytics in Buenos Aires.
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Officially, YPF says that the exchange is voluntary and that it will continue to pay all its bonds, whether they are exchanged or not. But that’s certainly not how investors understand the situation, while rating companies say the proposal constitutes a distressed trade that would amount to a default.
In general, YPF seeks to restructure US $ 6.2 billion in bonds, delaying a total of US$2.100 millones in debt payments until the end of next year to be able to invest the money in boosting production. The deal offers investors a slight advantage over current bond prices, but would leave creditors with losses of up to 16% on a net present value basis, as calculated by Portfolio Personal Inversiones, a local brokerage.
While some investors had anticipated that YPF would try to roll over its short-term debt, without imposing losses, the plan to restructure virtually all of the company’s foreign bonds turned out to be a big surprise.
“The offer crossed the line of reason,” said Ray Zucaro, investment director at RVX Asset Management in Miami, owner of the YPF bonds. “There was no reason why they needed to include all the bonds when they only needed short-term relief.”