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Fitch downgrades Argentina’s credit rating fearing ‘probable default’

Wednesday, November 28th 2012 - 05:37 UTC
Full article 52 comments
Uncertainty related to the impact of the US court ruling likely further damage confidence Uncertainty related to the impact of the US court ruling likely further damage confidence

Fitch Ratings agency announced on Tuesday it has downgraded Argentina's long-term foreign currency Issuer Default Rating from “B” to “CC,” with a negative outlook, as it sees a “probable default” if the country misses its payment to holdout investors.

The agency stated in a communiqué that “the increased probability that Argentina will not service its restructured debt securities issued under New York law on a timely basis reflects US District Judge Griesa's decision on Nov. 21 to remove the stay order on the ruling that Argentina must pay 1.33 billion dollars to holdout investors concurrent with or prior to its payments due to holders of the 2005 and 2010 restructured debt.”

Fitch assured that a missed payment could lead to a “cross default on all exchanged debt securities issued under international law.”

“A missed coupon payment of any other external securities would also trigger a cross default on all exchanged bonds issued under international law,” it continued.

Fearing Argentina will disobey his order, Griesa wants 1.33 billion deposited in a US escrow account by Dec. 15 to ensure payment if all appeals trying to overturn or block his decisions fail.

The “holdout” investors are suing to recover the full value of bonds that Argentina stopped paying in 2002, setting up a battle with the country's government which brands them as “vulture funds” and has refused to pay them.

Fitch put a negative outlook on the credit which is two steps away from outright default.

Argentina has vowed not to pay the holdout investors, led by Elliott Management's NML Capital Ltd and Aurelius Capital Management, prompting Griesa to order the payment be made before the 2nd Circuit rules on his decision.

Fitch highlighted Argentina's 2005 “Lock Law” which prohibits “re-opening the exchange or from conducting any type of settlement with holdouts without prior authorization from Congress” as a likely reason that payment will not be made.

If no payment is made a technical default would ensue, with uncertainty remaining over treatment of credit default swap contracts, which have surged in prices as investors scramble for protection from a default or restructuring.

“The uncertainty related to the impact of the US Court ruling is likely to further damage confidence and intensify political and social tensions in the country and undermine growth prospects,” Fitch said in its statement.

“While the authorities have been able to stabilize international reserves by progressively tightening capital controls, this has come at the expense of increased economic distortions. The sustainability of this strategy is also vulnerable to international commodity prices, especially soy,” Fitch said.

Top Comments

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  • surfer

    probable default, the time for smackdown is long overdue.

    once the Falkland Islands get pushed up the Argentine political agenda it's a sure fire sign of imminent economic meltdown.

    Nov 28th, 2012 - 06:21 am 0
  • Troy Tempest

    Falklands Barometer - higher up the agenda the higher the pressure

    Nov 28th, 2012 - 06:30 am 0
  • LEPRecon

    @1 surfer

    Yup, the end is nigh for CFKs inept economic model. Even Venezula hasn't got deep enough pockets to keep bailing her out.

    We should know the ILOST result by the end of the week (I'm betting they'll throw it out as not under their jurisdiction), the IMF will cut Argentina out of the international money markets on Dec 17. The future certainly doesn't look good for Argentina right now.

    Nov 28th, 2012 - 07:02 am 0
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