Argentina’s Province of La Rioja (CC/CCC-) has hired BCP Securities and Puente Hermanos as financial advisors for the planned restructuring of its 6.5%, USD 318m bonds due 2028, according to two sources familiar with the matter.

Cleary Gottlieb has been retained as legal counsel along with Argentine law firm Bruchou & Funes de Rioja, according to the first source and a third source familiar.

La Rioja announced 26 February that it is facing “constraints in its ability to pay principal and interest due on 24 February under its bonds due 2028.” As such, it is analyzing “how to best address the management of its financial commitments,” and it has retained advisors to initiate consultations with bondholders, La Rioja said in a press release.

The province’s goal is to reach “an amicable and consensual agreement” with creditors in the shortest possible timeframe.

Discussions with bondholders have not yet started, said the third source.

The Argentine province was due to pay USD 26m to holders of the 2028 notes by 24 February. Earlier this year, La Rioja’s legislature cleared the way for a restructuring, when lawmakers passed a law that allowed for it. The borrower was having trouble gathering the funds to make the payment, Debtwire reported, amid a drop in tax collection and increasing cost pressures.

“The province faces unprecedented economic challenges,” it said in its 26 February press release. “The contraction of Argentina’s economy, high inflation and the devaluation of the exchange rate have had a direct effect on the province’s economy, resulting in a severe decline in provincial fiscal revenues,” it stated.

“Most recently, the Province has not received co-participation funds from the federal government, as set forth under Article 83 of Law No. 27,701 (with reference to the 2023 national budget, which was extended to 2024), making the Province’s revenues insufficient to cover expenditures,” said the release.

La Rioja had already restructured its international bond debt in 2021, when it amended the terms of its 9.75% notes due 2025 to extend maturity to 2028 and reduce coupon to 6.5%.

“The 2021, post-pandemic scenario was ideal for La Rioja and other provinces to try to flatten their debt payment schedules and try to reduce debt at a slower pace, taking advantage of the low FX rate,” said the first source. Instead, creditors and borrowers preferred to defer the problem for three years, even when there was a high risk that debt will become unsustainable again, the source said.

Spokespeople at La Rioja, BCP Securities, Bruchou and Cleary did not reply to requests for comment. A spokesperson at Puente Hermanos declined to comment.