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Statement of Province of La Rioja Ad Hoc Group of Bondholders

July 13, 2021 GMT

NEW YORK, July 13, 2021 /PRNewswire/ -- Between 4 June and 30 June 2021, the Ad Hoc Group of Bondholders (the “Ad Hoc Group”) of the Province of La Rioja (the “Province) engaged in confidential discussions with Province with a view to reaching a consensual basis for a restructuring of the Province’s 9.75% Green Bond due 2025 (the “Green Bond”).

The talks included the exchange of two proposals by the Province and two counterproposals by the Ad Hoc Group. Nevertheless, no consensus was reached, and the Province failed to reply substantively to the Group’s second counterproposal and unilaterally terminated discussions.

The failure of the talks lies entirely with the Province. Unlike the nine other provinces that have reached consensual debt restructuring agreements with their bondholders (with the participation, in every case, of members of the Ad Hoc Group), the Province has sought restructuring terms that are not based on its financial needs and place disproportionate burdens on its bondholders.

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This approach from the Province is all the more regrettable in light of the fact that the Green Bond was issued in substantial measure to fund the construction of the Parque Eólico Arauco wind farm in which the Province is a 92.3% shareholder. The turbines that were built with bondholder funds now generate revenues for the Province every day, while the Province has been in default on the Green Bond for nearly a year and has made no good-faith attempt to resolve its default.

Even beyond its wind farm assets, the Province’s finances are in remarkably good shape and are vastly outpacing the forecasts the Province provided to bondholders shortly after its default in August 2020. The Province’s revenues have been healthy throughout the pandemic period and have accelerated further in 2021. With such strong economic performance, the Province’s opportunistic default on its Green Bonds becomes wholly indefensible.

A few figures from the Province’s own financial reporting1 highlight the anomaly of the Province’s default:

  • In 2020, Provincial current revenues grew 5%, while current expenditures concurrently dropped by 9%, all in real terms. This led to an unprecedented economic surplus of 14.2% of revenues, or US$117 million.
  • The Province used this fiscal windfall to increase capital expenditures by 59% in real terms. Even after this large expansion of public works, the Province still realized an overall fiscal surplus of 3.4% of revenues, or US$29 million.
  • In Q1 2021, current revenues increased 18% on the prior year, while current expenditures dropped by 2%, again in real terms. This led to an economic surplus of 25.2% of revenues, or US52 million.
  • Q1 2021 capital expenditures surged further, up 168% in real terms year-on-year. Again, even after this vast expansion of public works, the Province posted an overall surplus of 13.8% of revenues, or US$30 million in Q1 2021.

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In reality, the Province has generated over US$169 million in economic surplus and financed a massive expansion in public works while defaulting on US$29.2 million (thus far) of contractual interest payments to bondholders who financed its sustainability projects including the construction of its wind farm assets. It is in this context that the Ad Hoc Group maintain that the default of the Province has been unnecessary and opportunistic.

Notwithstanding this, the Ad Hoc Group have been prepared to negotiate a debt restructuring with the Province, but have reasonably expected the Province to make efforts similar to those of other Argentine provinces that have recently restructured. The most recent proposal from the Province, transmitted on 17 June, unfortunately falls short of this benchmark.

The table below shows the main parameters of the Province’s most recent proposal to bondholders, made on 17 June. The Ad Hoc Group responded with a counterproposal on 23 June that was in line with the approaches that have yielded widely-supported restructuring transactions with other provinces in recent months. As noted above, the Province failed to engage substantively with the Ad Hoc Group counterproposal, leading to the failure of discussions.

17 June Proposal of Province



New Maturity:

24-Feb-29



Coupon Rates:

3% until August 2022


Then, 4.75% until August 2024


Thereafter, 7.75%



Amortization:

9 semiannual amortizations from February 2025

PDI Treatment:

PDI recognized at contractual rate only through February 2021

To place the Province’s proposal in context, the Ad Hoc Group draws attention to the terms reached in recent months with the provinces of Cordoba, Entre Rios, Salta, Jujuy and Chaco (“Successful 2021 Restructurings”). The Successful 2021 Restructurings were in every case the product of good-faith negotiations consistent with the Basic Principles published by the Coalition of Argentine Provincial Bondholders and involved significant compromises by bondholders.


Average of Successful 2021 Restructurings

17 June Province Proposal

Ad Hoc Group Counterproposal





Original Contractual Coupon

8.67%

9.75%

9.75%

Average Coupon 2021-22

5.44%

3.46%

5.99%

Interim Coupon Relief

3.23%

6.29%

3.76%

Terminal Coupon

8.07%

7.75%

9.25%

Terminal Coupon Relief

0.60%

2.00%

0.50%

Date Reaching Terminal Coupon

8-Nov-22

24-Aug-24

24-Aug-22





PDI Recognition

In full, in all cases

Partial

In full

Measured by debt burden or fiscal position, the Province’s debt capacity compares favorably with the aforementioned provinces, and, when coupled with the fact of its unprecedented default on a Green Bond that it used to construct its wind park assets, there is no basis for the Province to seek more lenient terms than its peer group.

The inescapable conclusion is that the Province remains in default with its Green Bond unrestructured due solely to its opportunistic default and subsequent unwillingness to negotiate in good faith with the creditors whose investment funded, among other uses, the commercial wind park assets which the Province currently exploits.

This situation has led not only to ongoing litigation by members of the Ad Hoc Group against the Province in the U.S. Court of the Southern District of New York (Case No. 1:21-cv-03574-VSB), but also contributes to the elevated country risk which investors currently associate with all investments in Argentina.

The failure of the Province to honor or even restructure in good faith its contractual payments despite having the full financial capacity to meet them sends a message to all investors in Argentina that debt repayment by its governmental entities is considered optional and contracts need not be respected. The harm caused by this unfortunate attitude is ultimately borne by all provinces in the country, impairing growth prospects and blocking improvements in the standard of living of their residents.

The Ad Hoc Group calls upon the Province to responsibly engage in good-faith negotiations in the same manner as nine other provinces have already done with their bondholders. In the meantime, the members of the Ad Hoc Group intend to continue to vigorously pursue their legal remedies.

For media inquiries please contact White & Case, erin.hershkowitz@whitecase.com

1 All figures based on Province of La Rioja official reporting “Esquema A.I.F Administración Pública No Financiera(APNF)” published on www.larioja.gob.ar.

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SOURCE White & Case LLP