Members of the Ad Hoc Group of La Rioja Bondholders (the “Group”) holding 63% of the outstanding 9.75% Notes due 2025 (the “Notes”) issued by the Province of La Rioja (the “Province”) filed a claim today in the United States District Court for the Southern District of New York seeking a judgment against the Province in respect of the Province’s default on the Notes.
To date, the Province has missed two semi-annual interest payments on the Notes. The Province has made no serious efforts, either before or since its payment default, to engage with the Group to negotiate a consensual debt restructuring.
The Notes were issued as “Green Bonds”, a special type of financing for funding projects with positive environmental benefits. The Province used proceeds from issuance of the Notes to fund construction of the Parque Eólico Arauco wind farms, a commercial enterprise in which it holds a 92.3% stake. The wind farms have 150MW of capacity in commercial operation and a further 100MW under construction. The Arauco projects benefit from dollar-linked power purchase contracts and constitute a valuable economic asset of the Province, with the currently operational projects alone generating in excess of $40 million in annual EBITDA. The Province’s default in this context is unprecedented.
By its actions, the Province has sent a message to the international community that it believes it is acceptable to borrow money in international markets, use the borrowed funds to build assets with great commercial value and then callously ignore its obligation to repay its lenders. In so doing, the Province undermines not only its own investment environment and future economic prospects but harms all other provinces and the entire national economy of Argentina by giving the impression that even the most basic standards of commercial behavior can be disregarded in the country.
Nine other Argentine provinces have successfully concluded debt restructuring agreements with their international bondholders in recent months through good faith negotiations. Notably, and unlike the provinces that have reached agreements with their creditors, the Province passed a budget for 2021 proposed by its executive authorities that makes zero provision for interest payments to its international bondholders, even while providing for full payments of interest and principal to all other creditors.
The Province’s 2021 budget allocates a mere 0.5% of revenues to service interest payments on its other debts. Contractual interest payments on the Notes, which the Province failed to include in the budget despite its legal obligation to pay bondholders, amount to 3.4% of projected revenues. Meanwhile, the Province’s budget projects a budget surplus of 11% of revenues. It is thus obvious that the Province’s default is not driven by necessity but rather by an opportunistic effort to shirk its legal obligations. This is all the more true as federally-originated co-participation payments (which account for the lion’s share of Provincial revenues) in 2021 have grown significantly in real terms and well exceed budgeted levels.
Notwithstanding the Province’s unconstructive posture, the Group has attempted in recent months to negotiate in good faith with the Province. The Group has been prepared to engage in discussions on the basis of the Basic Principles of the Coalition of Argentine Provincial Bondholders which have successfully guided restructurings of other provinces. It is abundantly clear that the failure of this process lies not with the Province’s bondholders but rather with the Provincial authorities.
Faced with a debtor that has opportunistically defaulted and repeatedly failed to engage in good faith negotiations, the Group members resolved to seek a judicial determination of their position as a first step towards enforcing their contractual rights. The Group intends to pursue payment in full of its contractual entitlements to interest, principal and penalties failing a negotiated resolution.
The members of the Group have retained Quinn Emanuel Urquhart & Sullivan, LLP and White & Case LLP to pursue their legal claims.
Quinn Emanuel Urquhart & Sullivan, LLP
Debra O’Gorman in New York
T +1 212 849 7220
White & Case LLP
Erin Hershkowitz in New York
T +1 646 885 2200