S&P cuts rating for Argentina on increased debt service risk

11 September 2013 14:58  [Source: ICIS news]

LONDON (ICIS)--Standard & Poor's (S&P) has lowered its short-term credit rating for Argentina to ‘C’, from ‘B’, because of increased risks to debt service in the wake of a lawsuit in the US, the ratings agency said in a statement released late on Tuesday.

The agency also lowered its foreign and local currency sovereign credit rating on Argentina to 'CCC+', from 'B-', it said.

Last month, the US Second Circuit Court of Appeals upheld a ruling of a District Court in New York in the case against Argentina that would require Argentina to make payments to bondholders of its defaulted debt.

The plaintiffs are bondholders who did not participate in Argentina’s 2005 and 2010 debt exchanges and who have sought to block payments to bondholders who did participate until they obtain satisfaction of their claims for full payment.

S&P said that the US litigation could result in the interruption of payments on bonds currently under New York jurisdiction, or it could prompt Argentina "to undertake a debt exchange that we could view as distressed".

"Under our criteria, those outcomes would lead us to lower our rating on Argentina to 'SD' for selective default," S&P said.

The US Second Circuit Court of Appeals also decided to keep a previously granted stay order, pending an appeal filed by Argentina with the US Supreme Court.

However, S&P added that it is uncertain if the US Supreme Court will accept the case and, if it does, when it would hand down its ruling.

"If the US Supreme Court does not grant the appeal or if it eventually rules against Argentina, Argentina's ability to service its debt from the 2005 and 2010 exchange would be compromised," the agency added.

S&P also noted that Argentina already makes use of a "range of exchange controls, and there is a wide disparity between the official and parallel market exchange rate." 

Argentina’s government could further tighten its exchange control regime, to the extent that the ability of the private sector to service its foreign currency debt becomes impaired, the agency added.

By: Stefan Baumgarten
+1 713 525 2653

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