Argentina joins the CCC+ club
Most people are now well aware of the risks associated with owning Argentine debt, so it was no great surprise that the market barely flinched when Standard & Poor’s sent its rating on the country’s bonds yet further into junk territory on Tuesday.On Sept. 10, 2013, Standard & Poor’s Ratings Services lowered its unsolicited long-term foreign and local currency sovereign credit ratings on the Republic of Argentina (Argentina) to ‘CCC+’ from ‘B-’. At the same time, we lowered our unsolicited short-term ratings on Argentina to ‘C’ from ‘B’. The outlook on the long-term ratings is negative. We are also revising our transfer and convertibility assessment on Argentina to ‘CCC+’ from ‘B-’.
There’s not much in the way of good economic news coming out of Argentina these days, and the decision by a US appeals court last month to uphold a ruling attempting to force the government to honour its debt with the so-called “holdout” bondholders only added to the gloom.
Not surprisingly, S&P, in addition to downgrading Argentina to seven levels below investment grade, further warned that it could lower the rating to “selective default” if the lawsuit caused an interruption of payments on bonds under New York jurisdiction, or if it prompted Argentina to initiate a “distressed” debt exchange.
Again from S&P:
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. Under our criteria, those outcomes would lead us to lower our rating on Argentina to ‘SD’ for selective default. Although neither outcome is certain, we believe that there is at least a one-in-three chance of either occurring within the coming 12 months.
It’s all a bit grim, but there is light at the end of the tunnel. After almost a dozen gruelling years since Argentina’s record-busting debt default, with economic policy dominated by the Kirchner couple – first Néstor, now Cristina – that era is now beginning to come to an end.
With Cristina Fernández de Kirchner set for a poor performance in mid-term legislative elections next month, there is now next to no chance of her being re-elected in 2015.
She will avoid solving the “holdout” issue for as long as humanly possible – she may even never do so. But her successor will have to address the problem head on. With luck, that person will be a bit more pragmatic.
Related reading:Argentina loses appeal of ruling forcing it to pay bondholders, FT
Argentina’s pari passu upset – redux, FT Alphaville
Argentina: bread rush, beyondbrics
Argentina bonds: high yielding for a reason, beyondbrics
Argentina’s pari passu upset – redux, FT Alphaville
Argentina: bread rush, beyondbrics
Argentina bonds: high yielding for a reason, beyondbrics
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