Updated February 29, 2024

La Rioja bondholders called the province’s explanation for its default “entirely specious” after its government failed to make a US$26 million debt payment on Monday.

“The excuses provided by the Province are those of a recalcitrant and recidivist defaulter,” said a communiqué released by an ad hoc committee of La Rioja bondholders on Tuesday.

The previous day, the government sent a letter to its creditors blaming the contraction of Argentina’s economy, high inflation, and the devaluation of the peso for the default. 

The bondholders rejected the government’s arguments, saying the real reason was its “disdain […] for complying with legal and contractual obligations.” The communiqué also said that La Rioja representatives had told them they were seeking “a further restructuring of its debt” in September 2023. 

“The non-payment on February 24 was premeditated and not a result of exigent circumstances,” the bondholders said. They added that they reserve the right “to take prompt legal action against the Province” if payment of both interest and principal is not made “without further delay.”

They are entitled to bring legal proceedings against La Rioja at any time, since the province is already in breach of its contractual obligations.

“The behavior of the Province is harmful to the credit reputation of Argentina and its provinces and will constrain economic opportunities for the population of the Province,” they added.

The payment that matured on February 24 was made up of US$16 million in principal and US$10 million in interest, and the province said it would pay only the interest component. “To date, it has paid nothing,” the bondholders said.

Wind farms in La Rioja

The bonds in question are the RIF25, known as the “green bonds,” which derive from a previous default in 2020 and a restructuring in 2021. They will mature in 2028. The province invested most of its proceeds in wind farm projects under the company Arauco, whose main shareholder is the provincial government. In December 2022, La Rioja sold one of the wind farms to the Pampa Energía company for US$171 million.

The bondholders complained that the province “purports to be unable to pay US$16 million of capital payment to its bondholders” after the sale.

Ariel Parmigiani, chairman of Arauco, told the Herald the money from the sale was used to build two more wind farms. With the move, the company sought to improve the payment flow, generating more US dollars to repay the debt. “The capital is in the wind farms,” said Parmigiani. He added that the province is waiting for authorization from the Central Bank to get the U.S. dollars to pay the interest component.

A wind farm scheduled to be built in 2023 could not be finished because of import restrictions, leaving the province unable to make the payment in 2024, according to Parmigiani. He said the provincial government warned creditors of this in September, but that La Rioja failed to restructure the debt in time.

“We have a direct dialogue with the bondholders,” Parmigiani said. According to him, the creditors wrote the press release to dissuade other provinces from defaulting.

Bondholders believe La Rioja is not taking its obligations seriously. At the time of writing, the province had not made them a formal proposal to resolve the issue.

The Herald contacted the bondholders for comment but did not receive an immediate response. Parmigiani said that they aim to finish the restructuring before the next maturity, which is in August.