Macro Fixed Income Strategy Research

BTG Pactual Affiliate Research

BTG Pactual Argentina S.A
19 May 2020

Argentina Strategy Flash

Negotiations > Default
nd
Negotiations after May 22 default Alejo Costa
Argentina - BTG Pactual
Argentina’s administration is now working with a baseline where default occurs on
nd
alejo.costa@btgpactual.com
May 22 , but negotiations continue. The government would come up with a new +5411 3754 0945
proposal anchored on three counteroffers presented by investors, but negotiations
might take time. The counteroffers increase gross funding needs by more than
USD6bn between 2020 and 2023, and USD21bn by 2030, but the government seems
reluctant to accept debt services during the current administration. The proposals add
more than USD13 to the original exchange, through higher short-term cash flows from
accrued plus PDI, shorter grace period, higher average coupons, and almost no
principal haircut. The government will have to return with a middle ground.

Three proposals with two distinctive features

Investors presented three proposals, coming from i) the “Bondholders Group”, led by
Greylock, Gramercy, and Fintech among others; ii) the “Exchange Bondholder
Group”, led by HBK among other hedge funds; and iii) the ad-hoc group led by large
real money investors Blackrock, Fidelity, Ashmore and T. Rowe Price. The last
group’s proposal has the distinctive feature of favoring front-end instruments, giving
Discounts only a mild advantage over the back-end. In the case of the “Exchange
Bondholders”, Discounts value is notoriously higher.

Middle ground solution rational way to go, short-term cash is a hurdle

The payment of PDI plus accrued would represent USD1.7bn, which together with the
almost USD5bn in interests under the new proposal, would add to around USD6.5bn
between 2020 and 2023, vs no payments under the original proposal. This could
represent an obstacle in the negotiation, considering Fernandez has the goal of
making no payments at all during his administration. We believe negotiations will
focus on short-term cash flows, particularly during 2020-2023, a period where the
current administration plans on using all available resources to reignite demand,
under the view that market funding will not be available. Unfortunately, Argentina’s
default odds accumulate fast over time, reducing the value of any far future promise.

Strategy: Still OW, on 21s and Century bonds, close Pars

We remain OW, as we believe eventually some resolution will be reached, even if it
takes weeks or months. Both the government and investors will continue negotiating
and despite a default, an acceleration of bonds is unlikely, with organized groups still
negotiating. We believe eventually some middle ground will be reached. It might take
time though, considering that i) investors require short-term cash flows, less affected
by Argentina’s spread curve; ii) exchange bondholders, particularly Discount holders,
demand more favorable terms; iii) the government is reluctant to compromise 2020-
2023 revenue. We remain OW on Argentina21s, Century bonds, and close our
recommendation of USD Pars after a strong rally.

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 2

Negotiations > Default

Argentina’s administration received three counteroffers to its debt proposal,
and will now have to come up with a new proposal that somehow captures
some of investors’ demands, to gradually reduce the distance between parts. A
nd
middle ground however will most likely not be reached by May 22 end of the grace
period for April coupon payments, reaching a default. Negotiations will however
continue, and bond accelerations will most likely not take place as long as steering
committees remain involved in negotiations. We believe the government will continue
discussions for some time, making a counteroffer to investors’ proposals, though we
believe a back and forth negotiations will be necessary before an agreement with
enough support is reached. All proposals require large majorities as a condition.

Table 1: USD Bonds Valuations under Ad-Hoc Group Proposal Table 2: USD Bonds Valuations under Bondholder Group Proposal
Accrued/ Accrued/
Exchange NPV + Conversion NPV +
Unpaid NPV Unpaid NPV
Bond Interest Factor Interest
Interest Interest

2021 4.0 2027 64.9 68.8 2021 4.0 101.75% 50.5 54.5
2022 1.8 2027+2030 61.3 63.1 2022 1.8 101.75% 50.5 52.3
2023 1.7 2030 57.4 59.0 2023 1.7 101.75% 50.5 52.2
2026 4.3 2036 48.8 53.2 2026 4.3 100% 49.6 54.0
2027 2.2 2036 48.8 51.0 2027 2.2 100% 49.6 51.8
2028 (old) 2.5 2036 48.8 51.3 2028 (old) 2.5 100% 49.6 52.1

2028 (new) 2.1 2036 48.8 50.9 2028 (new) 2.1 100% 49.6 51.7

2036 2.7 2036 48.8 51.5 2036 2.7 100% 49.6 52.3

2046 4.4 2047 48.8 53.2 2046 4.4 97.68% 48.5 52.9
2048 2.5 2047 48.8 51.2 2048 2.5 97.68% 48.5 50.9
2117 2.8 2047 48.8 51.6 2117 2.8 97.68% 48.5 51.3
Discount 3.2 2039 52.1 55.3
Par 0.5 2047 48.8 49.3
Source: BTG Pactual Source: BTG Pactual

The main hurdle for an agreement seems to be short-term cash flows. For
investors, any significant increase in the value of the offer requires higher short-term
cash flows, as any back-loaded payment is heavily discounted. For the government,
on the other side, 2020-2023 funding needs represent a harder line, and Fernandez
will be reluctant to commit significant resources. Something will have to give, and the
most logical solution would be some type of middle ground, where some of the cash
flows in investors’ proposals are capitalized.

The counteroffers: summary and valuations

Argentina’s administration received three counteroffers, one from an ad-hoc

group, composed of large real money funds, the second one focused on
“Macri” bonds from the “Bondholders Group”, and the third one from the
“Exchange Bondholders” group, composed of hedge funds with heavy focus
on Exchange bonds. The first group if led by BlackRock, Fidelity, Ashmore and T.
Rowe Price, four large real money investors with long-standing positions in Argentina.
THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
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interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 3

The last two groups are represented by hedge funds with plenty of expertise in debt
restructuring processes, like Greylock, Gramercy, Fintech, and HBK.

Tables 1 to 6 summarize valuations for each bond under the most likely
exchange for each proposal and our house model for hazard rates. The ad-hoc
group proposal provides higher value on the front-end, where investors have access
to 2027s and 2030s, two instruments with higher value in our baseline, though less
upside. Back-end and belly valuations are similar across proposals, similarly to Pars.
Discounts, on the other side, are more valuable under Exchange Bondholders’
proposal.

Table 3: CHF/EUR Bonds Valuations under Ad-Hoc Group Proposal Table 4: CHF/EUR Bonds Valuations under Bondholder Group Proposal
Accrued/ Accrued/
Exchange NPV + Conversion NPV +
Unpaid NPV Unpaid NPV
Bond Interest Factor Interest
Interest Interest

2020 2.0 2027 63.6 65.6 2020 2.0 101.75% 51.1 53.1

2022 1.3 2027+2030 59.9 61.2 2022 1.3 101.75% 51.1 52.4

2023 1.2 2030 56.4 57.6 2023 1.2 101.75% 51.1 52.2
2027 1.7 2036 47.5 49.2 2027 1.7 100.00% 50.2 51.9
2028 1.8 2036 47.5 49.3 2028 1.8 97.68% 49.0 50.8
2047 3.3 2047 46.9 50.2 2047 3.3 97.68% 49.0 52.3
Discount 3.0 2039 52.1 55.2
Par 0.5 2047 46.9 47.4
Source: BTG Pactual Source: BTG Pactual

Table 5: USD Exchange Bonds Valuations under Exchange Group Table 6: EUR Exchange Bonds Valuations under Exchange Group
Proposal Proposal
Accrued/ Total Est. Accrued/ Total Est.
Exchange Exchange
Unpaid NPV GDP warrant Exchange Unpaid NPV GDP warrant Exchange
Bond Bond
Interest Value Interest Value
Discount 2033 97% 2033 97%
3.2 54.4 2.8 60.4 Discount 3.0 57.4 2.5 62.9
2040 3% 2040 3%

Par 2033 6% 0.5 2033 6%

0.5 45.5 46.0 Par 47.2 47.6
2040 94% 2040 94%

Source: BTG Pactual Source: BTG Pactual

The three offers share some characteristics, and imply similar cash flows for
the government:

1. Payment of accrued and PDI by the settlement date (USD1.7bn

total);

2. Shorter grace period for interest payments;

3. Higher average coupons;

4. Lower or no haircuts of principal;

5. New bonds replacing Exchange bonds are issued under the

2005 indenture, not the 2016;

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
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interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 4

6. Exchange completion contingent on reaching aggregation

majorities in the case of Macri bonds or 75% of the aggregate
principal in the case of 2005 indenture bonds.

Chart 1: Additional Debt Services under new Proposals

3,000 2,807

2,478
2,500

1,996
2,000
1,653

1,500

982
1,000 839

500 411

0
2020 2021 2022 2023
Government's Proposal Bondholders Group + Exchange Ad Hoc Group

Source: BTG Pactual

The common features are in line with expectations, but the proposals have
large differences across bonds. The ad-hoc group seems to take the government’s
proposal as the building block, a clever idea considering the back and forth of the
negotiation. Just like in that proposal, Exchange bonds, particularly Discounts, are
favored marginally, having priority access over 2039s, a slightly more attractive
instrument than the rest of the long bonds. The proposal, however, benefits more
aggressively the front-end, particularly 21s, also favored by the payment of the PDI.
Front-end bonds have priority in order over the new short instruments, more valuable
in our estimates, particularly 27s and 30s.

Table 7: Additional Debt Services under new Proposals Table 8: Summary of Instruments in Each Proposal
Additional debt Additional debt Additional debt Ad Hoc Bondholder Exchange
Counterproposals Bondholders Group
payments payments payments Group Bondholders Group
(2020-2023) (2020-2030) (2020-2047) 2005 and 2016
Eligible Bonds 2016 Indenture 2005 Indenture
Indenture
Bondholders Group +
6,986 20,774 37,658
Exchange 2027, 2030, 2036,
Par 2040 2033 & 2040 (in USD &
New bonds 2039, 2043 and 2047
(in USD & EUR) EUR) and GDP warrant
(in USD & EUR)
Ad Hoc Group 6,172 21,088 32,875 Conversion factors of 2036 and 2047 (USD
Principal haircut 101.75% , 100% or & EUR) with a 1% 0%
97.68% haircut

Grace Period 1 year 1 year 1 year

Step-up
Step-up Step-up
Coupon 4.4% average + some
5% average 4.75% average
PIK in 2021/2022
Accrued/ unpaid
Paid in cash Paid in cash Paid in cash
interest

Source: BTG Pactual Source: BTG Pactual

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 5

The exchange bondholder group seems to focus on Discounts, not only

benefitted by a more attractive instrument, but also benefitted by a new GDP
Warrant that pays an additional coupon of up to 2.5% if USD GDP is above
certain levels. The valuation of Discounts under that proposal would be close to
USD60, compared to USD46 for Pars. As for Macri bonds in the Bondholder group
proposal, depending on the tenor they would go from USD51 to USD54.5.

The main differences across proposals seem to be on the part of the curve
each group of bondholders is more dominant. The proposal of the ad-hoc group
of real money investors has valuations of USD63 to USD68 for the front-end, vs.
USD52 to USD54 for the bondholder group. On the other side, ad-hoc group proposal
has valuations close to USD55 for Discounts, vs USD60 under the exchange group
proposal. Is a middle ground possible? Will back-end holders, more represented by
hedge funds in the bondholder group accept a better treatment for real money guys,
more involved in the front-end? Will real money guys accept a better treatment of
Discounts? Finding a middle ground across bondholders seems less problematic than
with the government. Will the government accept cash flows than imply valuations
ranging from 50s to high-60s?

Table 9: A Summary of Three Proposals

Government Proposal Ad Hoc Group Proposal Bondholder Group Proposal Exchange Group Proposal

Currency New bond Value of

exchange (per Exchange New Conversion Exchange Exchange
Yield Yield Yield NPV New Bond Yield
100 of Value Bond Factor Value Value
principal)

2027 N/A N/A 11.0% 64.9

2030 10.2% 41.3 11.6% 57.4 101.75% 50.5
Par 2040 11.9% 49.6
USD 2036 10.9% 35.2 12.1% 48.8 100.00% 49.6
2047 10.7% 35.9 11.9% 48.8 97.68% 48.5

2039 10.9% 39.5 12.2% 52.1 2033 12.0% 54.7

+ GDP Warrant 16.8% 2.8
2043 10.8% 38.3 11.5% 43.4 2040 11.8% 44.9

2027 N/A N/A 10.1% 63.6

2030 9.2% 40.9 10.5% 56.4 101.8% 51.1
Par 2040 10.8% 50.2
EUR 2036 9.7% 34.8 10.9% 47.5 100.0% 50.2
2047 9.5% 35.5 10.8% 46.9 97.7% 49.0
2039 9.7% 38.8 11.2% 52.1 2033 11.0% 57.7
+ GDP Warrant 2.5
2043 9.8% 38.1 10.5% 43.1 2040 10.8% 46.5

Source: BTG Pactual, Infobae, Exchange Group Statement

The “Exchange bondholders” offer includes a new USD GDP warrant, only
available to Discounts investors, which we value at USD2.5. The structure is
cleaner than under Argentina’s 2005 GDP-linked units, and basically pays a coupon
between 0% and 2.5%, proportional to the distance between a base GDP (measured
in USD) and Argentina’s USD GDP, using GDP between 2023 and 2037 as a
reference, with payments in May of 2025 to 2039. The structure is cleaner, avoiding
the non-linearity of growth rate thresholds, and is simpler to calculate. We derive a
discount rate of 17% for an average payoff of USD1.5, but we must do more work to
come up with a cleaner estimate. The USD GDP path used as the baseline is
THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 6

reasonable when looking at 2019 USD GDP of USD448bn, but two things complicate
estimations: i) the depreciation of the currency in real terms, with an FX gap that
suggests a weaker official currency in scenarios where FX controls are lifted; ii) the
Covid-19 recession, which will reduce 2020 GDP and might require a few years until
activity rebounds to potential, whatever that is under current policies. Minister
Guzman seemed puzzled in a recent interview with the rejection of most investors of
GDP Warrants, falling into a pitfall many macroeconomists have fallen when looking
at these instruments. Macroeconomists usually look at the advantage of the
instrument looking at the capacity of the issuer to smooth consumption over time,
taking its return process as given. When issuing the instrument, however, its beta
might completely wipe out any gain for the issuer through a lower price, something an
asset pricing economist would spot from a mile away.

Chart 2: Yield vs. Price (ad-hoc group proposal, USD Bonds) Chart 3: Hazard Rate vs. Price (ad-hoc group proposal, USD Bonds)
1.3500 1.3500

1.1500 1.1500

0.9500 0.9500

0.7500 0.7500

0.5500 0.5500

0.3500 0.3500

0.1500 0.1500
4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
YTM Hazard Rate (CIR Long-Run)
2027 (CIR) 2030 (CIR) 2036 (CIR) 2027 (CIR) 2030 (CIR) 2036 (CIR)
2039 (CIR) 2047 (CIR) 2043 (CIR) 2039 (CIR) 2047 (CIR) 2043 (CIR)
Source: BTG Pactual Source: BTG Pactual

Chart 4: Yield vs. Price (Bondholders and Exchange, USD Bonds) Chart 5: Hazard Rate vs. Price (Bondholders and Exchange, USD Bonds)
1.1500 1.1500

1.0500 1.0500

0.9500 0.9500

0.8500 0.8500

0.7500 0.7500

0.6500 0.6500

0.5500 0.5500

0.4500 0.4500

0.3500 0.3500

0.2500 0.2500

0.1500 0.1500
4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
YTM Hazard Rate (CIR Long-Run)
2033 (CIR) 2040 (CIR) Par 2040 (CIR) 2033 (CIR) 2040 (CIR) Par 2040 (CIR)

Source: BTG Pactual Source: BTG Pactual

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
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interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 7

We use a Cox-Ingersoll-Ross model for the hazard rate, similar to our last
report, where we show the humped shape of the yield curve in Argentina’s
case. We adjust the hazard rate path to the debt services path under the new
proposals, with larger debt services per year, more front-loaded. As a result, our exit
yields under the new proposals increase from two sources: i) lower duration, as the
curve is inverted; ii) a higher probability of default by 2030, previously 80% now 83%,
with a higher initial hazard rate (7.5% vs 1% before) and a lower rate of mean
reversion (25% vs 30% before). As we mentioned in previous research, our hazard
rate model provides consistent exit yields across bonds, with each bond having the
same default probability structure behind it, something that would not occur if we
simply assumed a flat yield curve.

As we mentioned above, the main point of conflict will be on short-term cash

flows, but Guzman might also argue that the level of gross funding needs
under some years is also excessive as a result of higher average coupon rates.
Both things will likely be attacked by the government, demanding a longer grace
period as a bargaining chip for the payment of accrued and PDI, together with lower
coupons. We believe some middle ground will eventually be found, as the
government seems willing to leave this process behind, and investors are showing a
very favorable attitude to negotiations, willing to sacrifice average coupon rates while
providing a significant extension of maturities.

Chart 6: Government’s Proposal (Principal) Chart 7: Bondholder Group Proposal (Principal) Chart 8: Ad-hoc Group Proposal (Principal)
18,000 18,000 18,000

15,000 15,000 15,000

12,000 12,000 12,000

9,000 9,000 9,000

6,000 6,000 6,000

3,000 3,000 3,000

0 0 0
2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047
Foreign Law Local Law Foreign Law Local Law Foreign Law Local Law

Source: BTG Pactual Source: BTG Pactual Source: BTG Pactual

Chart 9: Government’s Proposal (Interest) Chart 10: Bondholder Group Proposal (Interest) Chart 11: Ad-hoc Group Proposal (Interest)
7,000 7,000 7,000
6,000 6,000 6,000
5,000 5,000 5,000
4,000
4,000 4,000
3,000
3,000 3,000
2,000
1,000 2,000 2,000

0 1,000 1,000
2020 2023 2026 2029 2032 2035 2038 2041 2044 2047
-1,000 0 0
2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047
Foreign Law Local Law Foreign Law Local Law Foreign Law Local Law

Source: BTG Pactual Source: BTG Pactual Source: BTG Pactual

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 8

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 9

Analysts

Claudio Ferraz Andres Borenstein

Head – Brazil andres.borenstein@btgpactual.com
claudio.ferraz@btgpactual.com +54 11 3754-0908
+55 21 3262-9758

Bruno Balassiano Alejo Costa

bruno.balassiano@btgpactual.com Alejo.Costa@btgpactual.com
+ 55 21 3262-9637 +54 11 3754-0945

Gabriel Barros Pablo Cruz

Gabriel.Barros@btgpactual.com pablo.cruz@btgpactual.com
+55 11 3383-9854 +562 2587-5903

André Batista Munir Jalil

andre.batista@btgpactual.com Munir.Jalil@btgpactual.com
+55 21 3262-9843 +57 1 927-65-29

Priscilla Burity Sofia Ordoñez

priscilla.burity@btgpactual.com Sofia.Ordonez@btgpactual.com
+55 21 3262-9278 +54 11 3754-0913

Iana Ferrão
iana.ferrao@btgpactual.com
+55 11 3383-3453

Required Disclosures

This report has been prepared by BTG Pactual Chile S.A. Corredores de
Bolsa.
The figures contained in performance charts refer to the past; past
performance is not a reliable indicator of future results.

BTG Pactual S.A. Global Credit Research: Recommendation

Definitions
THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 10

BTG Pactual S.A. employs a recommendation scheme designed to rank potential investment opportunities
within non-government fixed income markets and sectors

Time BTG Pactual S.A.

Outlook for Expectation Definition
Horizon Terminology
Credit fundamentals of
6 months IMPROVING Improve
the company
Credit fundamentals of the company are anticipated
STABLE Remain stable
to <expectation> over the next six months

DETERIORATING Deteriorate

Bond 3 months BUY Outperform

Company/Bond is anticipated to <expectation> other
companies/bonds within a given peer group in the
HOLD Perform in line
local currency investment universe over a three-month
horizon
SELL Underperform
The recommendation is under review and a new
All recommendation
N/A Under Review N/A recommendation may be published within the next
types
18 days

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may be;
(ii) no part of his or her compensation was, is, or will be, directly or
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herein or linked to the price of any of the securities discussed herein.
Research analysts contributing to this report who are employed by a non-US
Broker dealer are not registered/qualified as research analysts with FINRA
and therefore are not subject to the restrictions contained in the FINRA
rules on communications with a subject company, public appearances, and
trading securities held by a research analyst account.
Part of the analyst compensation comes from the profits of Banco BTG
Pactual S.A. or BTG Pactual Chile S.A. Corredores de Bolsa as a whole and/or
its affiliates and, consequently, revenues arisen from transactions held by
Banco BTG Pactual S.A., BTG Pactual Chile S.A. Corredores de Bolsa and/or
its affiliates.
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This report has been prepared by BTG Pactual Chile S.A. Corredores de
Bolsa (“BTG Pactual Chile”), formerly known as Celfin Capital S.A.
Corredores de Bolsa, a Chilean broker dealer registered with
Superintendencia Valores Y Seguros (SVS) in Chile, and is based in opinions
from BTG Pactual Chile, Banco BTG Pactual S.A. and its affiliates.

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 11

BTG Pactual Chile’s acquisition by Banco BTG Pactual S.A. (“BTG Pactual
S.A.”), a Brazilian regulated bank, responsible for the distribution of this
report in Brazil, was approved by the Brazilian Central Bank on November
14th, 2012 and responsible for the distribution of this report in Chile and
and BTG Pactual Perú S.A. Sociedad Agente de Bolsa (“BTG Pactual Peru”),
formerly known as Celfin Capital S.A. Sociedad Agente e Bolsa, registered
with Superintendencia de Mercado de Valores (SMV) of Peru is responsible
for the distribution of this report in Peru.
BTG Pactual S.A. Comisionista de Bolsa (“BTG Pactual Colombia”) formerly
known as Bolsa y Renta S.A. Comisionista de Bolsa, is a Colombian broker
dealer register with the Superintendencia Financeira de Colombia and is
responsible for the distribution of this report in Colombia. BTG Pactual
Colombia acquisition by BTG Pactual S.A. was approved by Brazilian Central
Bank on December 21st, 2012.
BTG Pactual US Capital LLC (“BTG Pactual US,”), a broker-dealer registered
with the U.S. Securities and Exchange Commission and a member of the
Financial Industry Regulatory Authority and the Securities Investor
Protection Corporation is distributing this report in the United States.
BTG Pactual US assumes responsibility for this research for purposes of U.S.
law. Any U.S. person receiving this report and wishing to effect any
transaction in a security discussed in this report should do so with BTG
Pactual US at 212-293-4600, 601 Lexington Ave. 57th Floor, New York, NY
10022.
This report is being distributed in the United Kingdom and elsewhere in the
European Economic Area (“EEA”) by BTG Pactual Europe LLP (“BTG Pactual
UK”), which is authorized and regulated by the Financial Conduct Authority
of the United Kingdom. This report may also be distributed in the United
Kingdom and elsewhere in the EEA by BTG Pactual S.A. and/or BTG Pactual
US. BTG Pactual UK has not: (i) produced this report, (ii) substantially
altered its contents, (iii) changed the direction of the recommendation, or
(iv) disseminated this report prior to its issue by BTG Pactual US. BTG
Pactual UK does not distribute summaries of research produced by BTG
Pactual US.
References herein to BTG Pactual include BTG Pactual S.A., BTG Pactual US
Capital LLC, BTG Pactual Europe LLP, BTG Pactual Chile, BTG Pactual Peru
and BTG Pactual Colombia.
This report is for distribution only under such circumstances as may be
permitted by applicable law. This report is not directed at you if BTG Pactual
is prohibited or restricted by any legislation or regulation in any jurisdiction
from making it available to you. You should satisfy yourself before reading it
that BTG Pactual is permitted to provide research material concerning
investments to you under relevant legislation and regulations.
Nothing in this report constitutes a representation that any investment
strategy or recommendation contained herein is suitable or appropriate to
a recipient’s individual circumstances or otherwise constitutes a personal
recommendation. It is published solely for information purposes, it does not

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 12

constitute an advertisement and is not to be construed as a solicitation,

offer, invitation or inducement to buy or sell any securities or related
financial instruments in any jurisdiction. Prices in this report are believed to
be reliable as of the date on which this report was issued and are derived
from one or more of the following: (i) sources as expressly specified
alongside the relevant data; (ii) the quoted price on the main regulated
market for the security in question; (iii) other public sources believed to be
reliable; or (iv) BTG Pactual 's proprietary data or data available to BTG
Pactual. All other information herein is believed to be reliable as of the date
on which this report was issued and has been obtained from public sources
believed to be reliable. No representation or warranty, either express or
implied, is provided in relation to the accuracy, completeness or reliability
of the information contained herein, except with respect to information
concerning Banco BTG Pactual S.A., its subsidiaries and affiliates, nor is it
intended to be a complete statement or summary of the securities, markets
or developments referred to in the report. In all cases, investors should
conduct their own investigation and analysis of such information before
taking or omitting to take any action in relation to securities or markets that
are analyzed in this report.
BTG Pactual does not undertake that investors will obtain profits, nor will it
share with investors any investment profits nor accept any liability for any
investment losses. Investments involve risks and investors should exercise
prudence in making their investment decisions. BTG Pactual accepts no
fiduciary duties to recipients of this report and in communicating this report
is not acting in a fiduciary capacity. The report should not be regarded by
recipients as a substitute for the exercise of their own judgment. Opinions,
estimates, and projections expressed herein constitute the current
judgment of the analyst responsible for the substance of this report as of
the date on which the report was issued and are therefore subject to
change without notice and may differ or be contrary to opinions expressed
by other business areas or groups of BTG Pactual as a result of using
different assumptions and criteria. Because the personal views of analysts
may differ from one another, Banco BTG Pactual S.A., its subsidiaries and
affiliates may have issued or may issue reports that are inconsistent with,
and/or reach different conclusions from, the information presented herein.
Any such opinions, estimates, and projections must not be construed as a
representation that the matters referred to therein will occur. Prices and
availability of financial instruments are indicative only and subject to change
without notice.
Research will initiate, update and cease coverage solely at the discretion of
BTG Pactual Investment Bank Research Management. The analysis
contained herein is based on numerous assumptions. Different assumptions
could result in materially different results. The analyst(s) responsible for the
preparation of this report may interact with trading desk personnel, sales
personnel and other constituencies for the purpose of gathering,
synthesizing and interpreting market information. BTG Pactual is under no
obligation to update or keep current the information contained herein,
except when terminating coverage of the companies discussed in the
THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 13

report. BTG Pactual relies on information barriers to control the flow of

information contained in one or more areas within BTG Pactual, into other
areas, units, groups or affiliates of BTG Pactual. The compensation of the
analyst who prepared this report is determined by research management
and senior management (not including investment banking). Analyst
compensation is not based on investment banking revenues, however,
compensation may relate to the revenues of BTG Pactual Investment Bank
as a whole, of which investment banking, sales and trading are a part.
The securities described herein may not be eligible for sale in all
jurisdictions or to certain categories of investors. Options, derivative
products and futures are not suitable for all investors, and trading in these
instruments is considered risky. Mortgage and asset-backed securities may
involve a high degree of risk and may be highly volatile in response to
fluctuations in interest rates and other market conditions. Past performance
is not necessarily indicative of future results. If a financial instrument is
denominated in a currency other than an investor’s currency, a change in
rates of exchange may adversely affect the value or price of or the income
derived from any security or related instrument mentioned in this report,
and the reader of this report assumes any currency risk.
This report does not take into account the investment objectives, financial
situation or particular needs of any particular investor. Investors should
obtain independent financial advice based on their own particular
circumstances before making an investment decision on the basis of the
information contained herein. For investment advice, trade execution or
other enquiries, clients should contact their local sales representative.
Neither BTG Pactual nor any of its affiliates, nor any of their respective
directors, employees or agents, accepts any liability for any loss or damage
arising out of the use of all or any part of this report. Notwithstanding any
other statement in this report, BTG Pactual UK does not seek to exclude or
restrict any duty or liability that it may have to a client under the
“regulatory system” in the UK (as such term is defined in the rules of the
Financial Conduct Authority).
Any prices stated in this report are for information purposes only and do
not represent valuations for individual securities or other instruments.
There is no representation that any transaction can or could have been
effected at those prices and any prices do not necessarily reflect BTG
Pactual internal books and records or theoretical model-based valuations
and may be based on certain assumptions. Different assumptions, by BTG
Pactual S.A., BTG Pactual US, BTG Pactual UKPactual Chile, BTG Pactual
Peruand BTG Pactual Colombia or any other source, may yield substantially
different results.
This report may not be reproduced or redistributed to any other person, in
whole or in part, for any purpose, without the prior written consent of BTG
Pactual and BTG Pactual accepts no liability whatsoever for the actions of
third parties in this respect.
Additional information relating to the financial instruments discussed in this
report is available upon request.
THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 14

BTG Pactual and its affiliates have in place arrangements to manage

conflicts of interest that may arise between them and their respective
clients and among their different clients. BTG Pactual and its affiliates are
involved in a full range of financial and related services including banking,
investment banking and the provision of investment services. As such, any
of BTG Pactual or its affiliates may have a material interest or a conflict of
interest in any services provided to clients by BTG Pactual or such affiliate.
Business areas within BTG Pactual and among its affiliates operate
independently of each other and restrict access by the particular
individual(s) responsible for handling client affairs to certain areas of
information where this is necessary in order to manage conflicts of interest
or material interests.
Any of BTG Pactual and its affiliates may: (a) have disclosed this report to
companies that are analyzed herein and subsequently amended this report
prior to publication; (b) give investment advice or provide other services to
another person about or concerning any securities that are discussed in this
report, which advice may not necessarily be consistent with or similar to the
information in this report; (c) trade (or have traded) for its own account (or
for or on behalf of clients), have either a long or short position in the
securities that are discussed in this report (and may buy or sell such
securities), with the securities that are discussed in this report; and/or (d)
buy and sell units in a collective investment scheme where it is the trustee
or operator (or an adviser) to the scheme, which units may reference
securities that are discussed in this report.
United Kingdom and EEA: Where this report is disseminated in the United
Kingdom or elsewhere in the EEA by BTG Pactual UK, this report is issued by
BTG Pactual UK only to, and is directed by BTG Pactual UK at, those who are
the intended recipients of this report. This report has been classified as
investment research and should not be considered a form of advertisement
or financial promotion under the provisions of FSMA 2000 (Sect. 21(8)).
Dubai: This research report does not constitute or form part of any offer to
issue or sell, or any solicitation of any offer to subscribe for or purchase, any
securities or investment products in the UAE (including the Dubai
International Financial Centre) and accordingly should not be construed as
such. Furthermore, this information is being made available on the basis
that the recipient acknowledges and understands that the entities and
securities to which it may relate have not been approved, licensed by or
registered with the UAE Central Bank, Emirates Securities and Commodities
Authority or the Dubai Financial Services Authority or any other relevant
licensing authority or governmental agency in the UAE. The content of this
report has not been approved by or filed with the UAE Central Bank or
Dubai Financial Services Authority.
United Arab Emirates Residents: This research report, and the information
contained herein, does not constitute, and is not intended to constitute, a
public offer of securities in the United Arab Emirates and accordingly should
not be construed as such. The securities are only being offered to a limited
number of sophisticated investors in the UAE who (a) are willing and able to

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Argentina Strategy Flash
19 May 2020 page 15

conduct an independent investigation of the risks involved in an investment

in such securities, and (b) upon their specific request. The securities have
not been approved by or licensed or registered with the UAE Central Bank
or any other relevant licensing authorities or governmental agencies in the
UAE. This research report is for the use of the named addressee only and
should not be given or shown to any other person (other than employees,
agents or consultants in connection with the addressee's consideration
thereof). No transaction will be concluded in the UAE and any enquiries
regarding the securities should be made with BTG Pactual CTVM S.A. at +55
11 3383-2638, Avenida Brigadeiro Faria Lima, 3477, 14th floor, São Paulo,
SP, Brazil, 04538-133.

THIS REPORT HAS BEEN PREPARED BY BTG PACTUAL ARGENTINA S.A. (AGENTE DE LIQUIDACIÓN Y
COMPENSACIÓN Y AGENTE DE NEGOCIACIÓN INTEGRAL - CNV NRO. 720)
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10
Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.