Argentina’s long-term sovereign foreign currency credit rating was cut one level by Standard & Poor’s, which cited a US Appeals Court ruling that prevents the country from honouring its debt without also paying holders of defaulted bonds in full.
S&P lowered the country’s rating to CCC+, seven levels below investment grade and in line with that of Egypt and Cyprus, from B-, according to an e-mailed statement today. S&P gave the rating a negative outlook.
The outlook on the credit remains negative, the ratings agency said in a statement. S&P also lowered its unsolicited short-term ratings on Argentina to C from B.
We are lowering our ratings on Argentina because of increased risks to debt service stemming from a lawsuit over the debt the government of Argentina still maintains in default, S&P said.
“The lawsuit 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,” S&P said in the statement. “There is at least a one-in-three chance of either occurring within the coming 12 months.”
The court said Aug. 23 that Argentina can’t make payments on its restructured debt while refusing to pay holders of 1.33 billion dollars in defaulted notes including hedge fund Elliott Management Corp. The ruling will also prevent third parties, including trustee Bank of New York Mellon Corp., from passing along payments to bondholders.
President Cristina Fernandez said August 26 that Argentina will offer a third restructuring to defaulted bondholders and let investors who own the restructured notes swap them into debt subject to local law. The bill opening the swap was passed by Congress with support from the opposition.
Economy Minister Hernan Lorenzino said on August 28 any plan to swap the restructured securities would be explored once the US Supreme Court decides whether to hear Argentina’s appeal against the holdouts. Since then, restructured dollar bonds due 2033 have rallied 2.46 cents on the dollar to 61.4 cents.
On September 6, Argentina urged the appeals court to reconsider its ruling which upheld the order for it to pay 1.33 billion to investors who chose to hold out from two debt exchanges in 2005 and 2010.
About 93% of Argentina's bonds were restructured with holders receiving between 25 cents to 29 cents on the dollar.