By Ryan Dube and Andrew Scurria

Argentina's government is finalizing an agreement with its biggest private creditors to restructure about $65 billion in foreign debt and resolve the country's third sovereign default this century, according to people involved in the talks.

Argentina's biggest creditors, led by BlackRock Inc., agreed to accept new bonds in return for the debt they currently hold in a settlement worth nearly 55 cents on the dollar, these people said.

The tentative agreement came ahead of a Tuesday deadline set by Argentina for creditors to accept its offer. Officials at the Economy Ministry and president's office said they couldn't confirm an agreement.

"There is a handshake," said a foreign creditor involved in the negotiations. "The big guys caved."

Economy Minister Martín Guzmán recently said the government wouldn't improve the current offer and would start talks with the International Monetary Fund on refinancing its bailout from the lender if there wasn't a deal with bondholders.

"There is nothing to report at the moment," said a government spokesman.

If a deal weren't reached, Mr. Guzmán told newspaper Pagina12 on Sunday, the government would wait to return to talks with private creditors in six to eight months, "but with a deeper restructuring proposal."

Argentina owes $44 billion to the IMF, which says the country's debt is unsustainable.

Argentina defaulted in May for the ninth time in its history when it failed to make a $500 million interest payment.

Latin America's third biggest economy has been mired in a recession since a 2018 currency crisis as it grappled with double-digit inflation, one of the world's highest.

President Alberto Fernandez's cash-strapped government took office in December, pledging to restructure foreign debt that it says is unsustainable. Argentina's economy has been further hit by the coronavirus pandemic after authorities implemented a strict lockdown in March to slow the spread of the virus. The IMF expects Argentina's economy to contract almost 10% this year.

Alexander Gladstone and Dawn Lim contributed to this article.

Write to Ryan Dube at ryan.dube@dowjones.com and Andrew Scurria at Andrew.Scurria@wsj.com