Argentina Defaults, Again

S&P: Argentina Foreign Currency Ratings Lowered To ‘SD’ After Holders Of Discount Bonds Did Not Receive Interest Payment

  • On June 30, 2014, the Republic of Argentina failed to make a US$539 million interest payment on its discount bonds maturing in December 2033 (Discount Bonds). Standard & Poor’s does not rate the Discount Bonds. The Discount Bonds provide for a 30-day grace period for payment.
  • On July 30, the grace period expired with bondholders not receiving their payment.
  • We are therefore lowering our long- and short-term foreign currency sovereign credit ratings on Argentina to selective default (‘SD’) from ‘CCC-/C’, indicating that Argentina defaulted on some of its foreign currency obligations. At the same time, we are removing the ‘CCC-/C’ foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014.
  • If and when Argentina cures the payment default on the Discount Bonds, we could revise our ratings on Argentina depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets, and its overall credit profile.


RATING ACTION

On July 30, 2014, Standard & Poor’s Ratings Services lowered its unsolicited long- and short-term foreign currency sovereign credit ratings on the Republic of Argentina to selective default (‘SD’) from ‘CCC-/C’. At the same time, we removed the ‘CCC-/C’ foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014.

We affirmed our unsolicited ‘CCC+/C’ long- and short-term local currency sovereign credit ratings and ‘raBB+’ national scale rating on Argentina. The outlook on these ratings on Argentina remains negative. The transfer and convertibility (T&C) assessment remains ‘CCC-‘.

RATIONALE

On June 30, 2014, Argentina failed to make a US$539 million interest payment on its Discount Bonds maturing in December 2033. Under the terms of the Discount Bonds, Argentina had a 30-day grace period following the June 30 scheduled interest payment date to make payment.

Standard & Poor’s defines “default” to include instances where either scheduled debt service is not paid on the due date or an offer of new replacement debt contains terms that are less favorable than those of the debt being replaced. Our interpretation of an issuer meeting its financial commitments “as they come due” is that investors are paid in full and on time (see “Timeliness Of Payments: Grace Periods, Guarantees, And Use Of ‘D’ And ‘SD’ Ratings,” published Oct. 24, 2013), failing which we lower the rating on the relevant rated issue(s) to ‘D’ and we downgrade the issuer to ‘SD’.

Our affirmation of the ‘CCC+/C’ local currency ratings reflects our view that the potential disruptions to interest payments on Argentina’s external debt are not likely to further erode its ability to service its debt issued in its local currency and under its local law. We also maintain our ‘CCC-‘ T&C assessment for Argentina because we believe that assessment still reflects the risks of Argentina’s restrictive exchange control laws and policies.

The foreign currency sovereign credit ratings will remain at ‘SD’ until Argentina cures its payment default on the Discount Bonds. If and when Argentina cures the payment default on the Discount Bonds, we will reassess the sovereign’s general credit standing, most likely raising the foreign currency rating to the triple ‘C’ or low ‘B’ categories.

source: s&p

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