Argentina downgraded to selective default by S&P on debt swap

Argentina’s local debt was slapped with a downgrade to selective default by S&P Global Ratings Wednesday after the government pushed investors into exchanging bonds for new notes with later maturities. 

The ratings company cut the local credit rating to SD from CCC-, citing what it called a distressed debt swap “tantamount to default” in a statement. 

President Javier Milei’s government launched an exchange of around US$65 billion of peso-denominated securities due in 2024 for new bonds maturing next year through 2028. Creditors holding about 77 percent of the instruments agreed to the deal. 

While previous administrations have utilised such debt swaps, the record size of this week’s operation tested local market confidence in Milei as he seeks to overhaul the economy, bring down runaway inflation and build up foreign reserves.  

“Our long-term ratings trajectory for Argentina will depend on the ability of the new administration to advance its stabilisation plan,” S&P analysts wrote in the statement. The foreign currency rating was left unchanged at CCC-. 

The auction’s results relied heavily on support from public-sector bondholders. But the government could only win some 17.5 percent of private-sector debt investors, according to Economy Ministry data.

Argentina has been heavily reliant on local debt exchanges to manage its finances after it defaulted on its international bonds in 2020 and hasn’t returned to global debt markets since. S&P said it would lift the local debt rating once the exchange is complete.