YPF Delays Put 55-Cent Default Deal in Doubt

YPF’s Delays Put 55-Cent Default Deal in Doubt
Without YPF, which was seized by President Cristina Fernandez de Kirchner in April, Metrogas has less of a chance of being allowed to raise rates that have been capped since 1999, according to Tom Mullen, a partner at TWM Capital LP. Photographer Walter Moreno/Bloomberg

Metrogas SA’s creditors risk losing the chance to recoup any money from their defaulted bonds as takeover talks between Argentina’s biggest gas distributor and state-owned oil producer YPF SA stall.

Metrogas’s dollar bonds maturing in 2014 dropped as far as 30.05 cents on the dollar last week, the lowest since Aug. 30, after a Sept. 27 meeting between BG Inversiones Argentinas SA, the company’s majority owner, and YPF was postponed. Yields on utility debt in Latin America fell eight basis points, or 0.08 percentage point, to 5.53 percent in the same period.

Under a debt restructuring last month, creditors are in line to get 55 cents on the dollar in new bonds. Without YPF, which was seized by President Cristina Fernandez de Kirchner in April, Metrogas has less of a chance of being allowed to raise rates that have been capped since 1999, according to Tom Mullen, a partner at TWM Capital LP. That increases the likelihood the company, which doesn’t even have money to pay its suppliers, will default again.

“It’s very likely that they’ll end up delaying the deal,” Mullen said in a telephone interview. That “results in more of the same: suppliers not getting paid and the company getting backed into a corner.”

Metrogas is 70 percent owned by Gas Argentino SA, which is 55 percent owned by BG Inversiones, a unit of the U.K.’s BG Group Plc. YPF, Argentina’s largest oil company, owns the rest. YPF was expropriated by the government in April.

YPF Expropriation

Kim Blomley, a press official at BG Group, declined to comment on the negotiations, as did Alejandro Di Lazzaro, a spokesman for Buenos Aires-based YPF. Jessica Rey, a spokeswoman for Deputy Economy Minister Axel Kicillof, who oversees YPF’s management, didn’t respond to telephone calls seeking comment.

Jorge Montanari, spokesman for Buenos Aires-based Metrogas, wasn’t available to respond to questions, said a person at his office, who declined to be identified.

Metrogas has said it needs higher rates to pay suppliers that include Petroleo Brasileiro SA. An option for YPF to buy BG’s stake expired last October after the government rejected the acquisition. Negotiations resumed after Fernandez expropriated 51 percent of YPF from Spain’s Repsol YPF SA and assigned Kicillof to oversee its management.

Argentina in January won a U.S. appeals court decision that overturned a $185 million award to BG, which had claimed the nation’s freeze on natural gas prices pushed Metrogas to default on its debt in 2004. In 2010 the company ceased debt payments again and filed for bankruptcy protection.

Viable Rates

The government’s control of utility rates also forced electricity distributor Empresa Distribuidora y Comercializadora Norte SA to sell assets to meet the obligations of its debt, which now trades at distressed levels, and pushed Transportadora Gas del Norte SA to default on its bonds in 2008. The gas pipeline company restructured its debt earlier this year.

“As long as these companies don’t get rates increases they aren’t going to be viable and there’s no concrete step in that direction,” said Christian Reos, head of research at Buenos Aires-based brokerage Allaria Ledesma & Cia.

The cost to protect Argentine debt against non-payment for five years with credit-default swaps fell 16 basis points to 943 basis points at 2:19 p.m. in Buenos Aires, according to data compiled by Bloomberg. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

The extra yield investors demand to hold Argentine government dollar bonds instead of Treasuries fell 26 basis points to 871 basis points, data compiled by JPMorgan show.

Second Chance

Warrants tied to economic growth rose 0.01 cent to 13.06 cents. The peso was little changed at 4.6985 per dollar.

Metrogas, which had a total 1.9 billion pesos ($404 million) of outstanding debt as of June 30, lost 37.7 million pesos in the second quarter, according to data compiled by Bloomberg. The company has posted losses every year since 2008.

Last month, the company won court approval to proceed with its $250 million debt restructuring. Under the terms of the agreement, bondholders will receive 55 cents on the dollar and about 19 months of accrued interest in new 2018 notes, according to a filing with the Buenos Aires stock exchange. The new securities will pay interest of 8.875 percent.

The 2014 notes have risen 13.83 cents on the dollar since touching a record-low of 20 cents on the dollar in July. That signals increased confidence among some speculators that YPF and Metrogas, which has 2 million clients, will come to an agreement that lets the gas distributor meet its obligations on the new securities, said Leonardo Bazzi, head of research at Puente Hermanos SA, a Buenos Aires-based brokerage.

Relative Value

“Bondholders expect the situation will be resolved, maybe not tomorrow, but soon enough to allow Metrogas to continue operating and paying debt,” he said in a telephone interview. “The company is too important to national consumption, so it’s also in the interest of the government to work out a solution.”

The defaulted notes are still worth almost half the new bonds, which TWM Capital’s Mullen says reflects greater concern the Argentine government will reject any tariff increases and ultimately leave Metrogas creditors with worthless securities.

“The intelligent thing to do is buy out BG and work out some kind of agreement,” he said. “But it’s anyone’s guess if this will actually happen.”

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