La Rioja Creditors Seek Debt Talks Amid Economic Reforms

Key Takeaway

• La Rioja's creditors, facing a missed $15.9 million bond payment, hire Quinn Emanuel for potential debt talks after rejecting a counterproposal.
• Economic reforms under President Milei strain La Rioja's finances, contributing to austerity measures and a projected 3.5% economic contraction in 2024.
• Provincial bonds' appeal declines amid fiscal uncertainty, with La Rioja's 2028 notes dropping to 54 cents on the dollar despite gains in sovereign bonds.

Debt Renegotiation Efforts

Creditors of Argentina's La Rioja province are in the process of seeking advice for potential debt discussions, following disagreements with provincial officials over bond payments exceeding $16 million. The bondholders, who are due to receive payments for notes maturing in 2028, have engaged the services of Quinn Emanuel Urquhart & Sullivan, LLP as legal counsel. They have issued a request for La Rioja to fulfill its financial obligations by the upcoming week. This development comes after the province's rejection of a counterproposal from the creditors, details of which were not disclosed by a spokesperson for the creditor committee.

La Rioja missed a principal bond payment of $15.9 million on February 24 and subsequently made an interest payment of $10.4 million in late March, with $500,000 being withheld by the bond trustee. The creditors are now demanding the remaining balances.

Economic Challenges in La Rioja

La Rioja, a province in northwest Argentina with a population of approximately 385,000, is facing financial difficulties amid broader economic reforms initiated by Argentine President Javier Milei. Milei's "shock therapy" approach, aimed at correcting decades of economic mismanagement, includes significant cuts in federal aid to state governments. These measures have led to economic hardships across several provinces, including La Rioja.

The governor of La Rioja has attributed the need to freeze civil servant salaries directly to the austerity measures imposed by Milei's administration. These economic policies have also contributed to a projected 3.5% contraction in Argentina's economy in 2024, as per the central bank's monthly survey.

Impact on Provincial Bonds

The uncertainty surrounding the flow of funds from the central government to the provinces has negatively affected the appeal of provincial bonds. These bonds, once considered a relatively safe investment option for those looking to invest in Argentina while avoiding the risks associated with sovereign debt, have seen their reputation tarnished. La Rioja's 2028 notes, for example, have decreased in value by approximately 4 cents, trading at 54 cents on the dollar.

This decline in provincial bond values contrasts sharply with the significant gains experienced by Argentina's sovereign bonds since President Milei took office in December. Sovereign bonds due in 2030 have seen an increase of over 19 cents during this period.

Street Views

• Ramiro Blazquez, BancTrust & Co. (Neutral on Argentine provinces):

  "As it concerns provinces, some names are better equipped than others to weather the decline in central government transfers, both discretionary and funds allocated to public works."