As the clock ticked past midnight on Aug. 4, Argentine negotiators knew a deal was close to break the deadlock on a $65 billion debt deal, one of the biggest ever sovereign restructurings which has tested global financial markets.
The talks, on a knife-edge as tensions rose between officials and creditors, had been dragged back on course by last-ditch calls between government advisers, major creditors including BlackRock, which clashed openly with Argentina earlier this year, and Economy Minister Martin Guzman.
Guzman and BlackRock’s key negotiator Jennifer O’Neil, in weekend talks, had arrived by Sunday night at the framework of a deal bridging the gap between the two sides. It needed to be cleared with other creditors, but the involvement of the world’s largest asset manager was key to getting it across the line.
Guzman gave the green light to advisers, including top executives from Bank of America and HSBC, saying: “Get it finished”, one person close to the talks recalled.
Talks had twisted since the start of the year in a process hindered by the coronavirus pandemic, sailing past multiple deadlines as key creditors clashed with Guzman, a 37-year-old economist with close ties to Nobel laureate Joseph Stiglitz.
In mid-June, two of the major creditor groups slammed the negotiations as having failed. A “final” government offer made in early July was rejected too and that same Sunday Guzman warned creditors a no deal would see talks stall for months.
Now, with the political will behind a deal, advisers including Bank of America’s country chief Sebastián Loketek sat across the digital negotiating table from O’Neil and Pablo Federico from Ayres Capital, another important creditor.
Guzman was on a constant direct line.
“The negotiation that started on Sunday was intense, it was tough,” the first person said. “We slept two or three hours between Sunday to Tuesday at 3 a.m.”
Calls went on between the creditors to rally behind the proposal which settled at around 54.8 cents on the dollar, a compromise between what had become entrenched positions of the government and the three creditor groups that unified in July.
On Monday morning creditors held a 9 a.m. call to discuss the proposal, a second person close to the talks said. An outline of what the groups would accept was sent back on WhatsApp, a third person said, before lawyers for both sides worked on Monday afternoon to bulletproof a final statement.
Graham Stock, an emerging markets strategist at creditor BlueBay Asset Management, part of the so-called Ad Hoc group with BlackRock, said everything had been “fluid” right up until Monday. But the concessions got “unanimous” support.
“They managed to craft a midway point between our latest proposal and the government’s latest offer that was satisfactory to other members of the group and to the government.”
At 3.01 a.m. on Tuesday Guzman wrote on Twitter that Argentina and the three key creditor groups had reached a deal.
“Right up until the press release was sent I was never 100% certain,” said the second person. “There was tension all the way until the end.”
At times a deal had looked a distant prospect, raising fears of legal battles that Argentina’s creditors recalled only too well from a messy restructuring after a default in 2001-02 that left the country as a pariah in global markets.
At a low-point in the talks in May, government officials aimed barbs, especially at another of BlackRock’s negotiators Gerardo Rodriguez, a former Mexican finance undersecretary who had been key to raising BlackRock’s exposure in the grains powerhouse during the previous government of Mauricio Macri.
Creditors criticized Guzman for side-lining people in talks.
A source close to the government recalled an early exchange during which Rodriguez told Guzman creditors may “just wait for the next government, however soon that may be”.
As talks progressed, officials and creditors said Rodriguez took a less prominent role while O’Neil, an expert on corporate restructuring, came to the fore.
During increasingly frequent phone calls in English – O’Neil speaks no Spanish – she and Guzman discussed their shared interests in running and New York City, where the minister had spent some time, before diving into technicalities over debt.
“There was a personal connection which helped establish some level of trust,” said a person close to the talks.
Guzman, though politically untested, was an academic expert on sovereign restructurings. Since taking office he has helped Argentina get strong support from prominent economists and built a close relationship with the IMF and even Pope Francis.
Stiglitz, Guzman’s mentor at Columbia University and co-author of many papers including one on economic crises published during the talks, said the minister carries “Zen-like calmness, laser focus and expertise.”
“He brought in a knowledge set and analytic ability that was unusual,” Stiglitz said. “The Alpha males in the credit world are used to dealing with countries that don’t have that degree of confidence.”
Riccardo Grassi, risk manager at creditor Mangart Capital Advisors, agreed the minister was usually calm but said he could at times become irritated. The person close to the government and with direct knowledge of the talks described Guzman as “like a Zen monk warrior.”
Guzman did not respond to requests for comment.
After sweeping into power in December, Fernandez and Guzman made their first offer to creditors in April. At around 40 cents on the dollar it was an aggressive opening gambit.
Gorky Urquieta, co-head of emerging markets debt at Neuberger Berman, a holder of Argentine bonds, echoed many creditors, calling the initial offer “absolutely unacceptable.”
“It needed five minutes to reject it,” he said.
Since then, Urquieta said, the talks had been “very Argentina style, a lot of drama around it, a big, long saga that seems to be coming close to a resolution.”
‘MOMENT OF HAPPINESS’
That drama was heightened by the pandemic. Argentina imposed a nationwide lockdown on March 20 and closed its borders, meaning negotiations that once would have been face-to-face suddenly had to be done on video platforms like Zoom.
As the endgame neared, creditors said advisers like UBS and Mens Sana helped eased tensions, helping navigate local politics and facilitate easing communication between the creditors themselves, who were at time fragmented.
Others identified important go-betweens like Sergio Massa, the well-connected head of Argentina’s lower house of Congress.
“Sergio helped a lot to prevent people from exploding,” the first source said, adding that Massa’s role was to assure his markets contacts “that Argentina wanted to fix things.”
In mid-July creditors rallied behind their own proposal, demanding changes to legal clauses and around 3 cents on the dollar more in value. The groups – that together could block a deal – rejected the government’s ‘final’ proposal.
Carl Ross at GMO, who was on the steering committee of the Argentina Creditor Committee, said the groups combining was vital for leverage, but also there was growing recognition that backing the government into a corner came with risks.
“It was clear that politically it was going to be impossible (for Argentina to raise the offer) and there was a risk the more radical elements would win out,” he said.
When the final Zoom calls were made to seal the agreement, Marcelo Delmar, an advisor from Mens Sana, said there was more a sense of relief than euphoria.
Creditors still have to formally accept the deal by an Aug. 24 deadline, though three of the people close to the talks said it looked like at least 85-90% would take part, maybe more.
“Yes it was a moment of happiness,” said Delmar. “But then life goes on.”