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ECONOMY | 07-09-2020 21:53

Argentina exits default after US$65-billion debt deal

Nation officially emerges from its ninth default after Standard & Poor's Global raised its credit rating following the restructuring of US$65 billion of overseas debt.

Argentina has officially emerged from its ninth default after Standard & Poor's Global raised its credit rating following the restructuring of US$65 billion of overseas debt.

S&P Global lifted the rating to CCC+ with a stable outlook from “selective default” after the country issued new bonds September 4 to replace securities that had been in default since May. The ratings agency raised Argentina’s long-term foreign and local currency rating on both international and local law debt.

Argentina’s upgrade out of default is the culmination of more than four months of negotiations with the country’s largest creditors which resulted in a deal worth roughly 55 cents on the dollar. That was enough for bondholders to exchange 99 percent of the nation’s international debt, granting about US$38 billion in debt relief over the next 10 years.

“This important step forward provides the opportunity for the government to articulate a broader plan to tackle various post-pandemic macroeconomic challenges, negotiate a new programme with the IMF, and work to clear arrears with the Paris Club,” S&P Global wrote in statement.

Still, traders bid Monday on Argentina’s new dollar bonds due 2029 with yields of about 10.9 percent, in line with where the notes were trading last week in unofficial, over-the-counter transactions. The high yields signal expectations that Argentina may default again in the future. The economy is expected to contract about 13.5 percent this year, according to JP Morgan.

“Argentina still has to address a major credibility gap,” said Ramiro Blazquez, head of research at BancTrust & Co in Buenos Aires. The government “will need to deliver on the policy front. The first litmus test will be regaining macroeconomic consistency by reaching an agreement with the IMF.”

Argentina said it would seek to reduce the bonds’ yields in the coming months through consistent macroeconomic management, and won’t return to international debt markets for a while, Economy Minister Martín Guzmán said Friday in an interview with Bloomberg TV last week.

Argentina will also continue to work with the retail bondholders in Europe who hold the one percent of debt that didn’t make it into the agreement, Guzmán said during the interview.

“The remaining one percent, we will continue working on it, it’s mostly a technical issue,” Guzman said of the holdouts. “There were some retail bondholders that were registered in Europe that did not get a chance to vote, but we don’t see that as a problem.”

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by Scott Squires, Bloomberg

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