Argentina’s largest oil group swerves $6.2bn debt default

Argentina’s largest oil company will avoid defaulting on $6.2bn of debt after on Sunday reaching an agreement with its most combative creditors, in a last-minute reprieve for the country’s struggling energy sector.

YPF’s private creditors — including Fidelity, Ashmore and BlackRock, which are still smarting from Argentina’s sovereign debt restructuring last year — had rejected the group’s initial restructuring offers.

However, after a weekend of intense negotiations following YPF’s failure to secure sufficient acceptance of its restructuring offer by Friday’s deadline, the company confirmed on Monday that enough investors holding YPF’s bond maturing in 2021 had agreed to roll over a critical $413m interest payment due on March 23.

The deadline for the debt exchange — terms of which were improved for a fourth time on Sunday to get investors on side — has been extended to February 10.

“It’s over. There is a deal with the 2021 [bond]. That’s all that matters,” said a person close to the negotiations, meaning YPF has in effect staved off a default.

The tense showdown was triggered by central bank regulations aimed at shoring up scarce foreign exchange reserves that would have prevented YPF from making the March payment, which had to be in US dollars. It threatened to deal a crippling blow to the state-controlled energy group and derail prospects for the development of Argentina’s giant Vaca Muerta or “Dead Cow” shale field, with YPF leading development of the project.

“The central bank restrictions created an uncomfortable situation. We basically had to explain to the market that we are just another Argentine company subject to regulations, which forced us to refinance our debt,” said Alejandro Lew, YPF’s chief financial officer. He said he had held more than 50 one-on-one meetings with investors.

The restructuring will push more than $2bn in debt payments out to 2023 and replace old bonds with three new ones, including an export-backed note maturing in 2026 that offers more protection than unsecured debt. 

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YPF’s debt burden is nearly four times its market capitalisation of about $1.6bn after its share price more than halved over the past year.

Founded in 1922, the group’s finances have steadily declined in recent years. Even before the pandemic dealt a heavy blow, YPF in 2019 recorded losses of about $370m.

Gustavo Ber, a financial analyst in Buenos Aires, said the central bank regulations had hit all private sector companies and their ability to access financing, with implications for future levels of investment. 

“This restructuring is not only relevant for YPF, but also the economic and political signals sent out to investors in general,” he said, noting that other companies may now be encouraged to restructure their debt.

The restructuring discussions were complicated by the departure of chairman Guillermo Nielsen, also the architect of the country’s 2005 sovereign debt restructuring, who was ousted last month and replaced by Pablo González, a politician with little experience in the energy sector. González is close to Argentina’s powerful vice-president, Cristina Fernández de Kirchner, who repeatedly clashed with investors during her 2007-13 presidency.

The central bank’s foreign exchange restrictions have contributed to a sharp fall in the price of Argentina’s sovereign debt since it was successfully restructured last year, putting an end to the country’s ninth debt default since it declared independence in 1816. 

Shares in YPF rose more than 6 per cent to $4.46 in midday trading on Monday.