Wednesday, July 17, 2024

ECONOMY | 27-05-2020 00:34

S&P, Fitch officially lists Argentina as in default

Argentina’s ninth default on external debt is now official after Fitch and S&P cut bond ratings to default status.

Ratings agencies Fitch and S&P have officially designated Argentina as in default. 

The country's ninth default on its external debt was confirmed as some of Argentina's bonds were cut to default status by the two rating agencies.

Fitch Ratings reduced Argentina nation from 'C' to "restricted default" Tuesday, while S&P Global downgraded four of its dollar-denominated bonds to default from 'CC' to 'D' (default) following a missed US$500-million payment last week.

The moves relate to 2021, 2026 and 2046 bonds, whose grace period expired last Friday. "These bonds will remain under 'D' rating until the ongoing debt renegotiation is concluded," S&P said in a statement.

President Alberto Fernández’s government is locked in talks with creditors to restructure US$65 billion in overseas securities, including the aforementioned three. Argentina extended the deadline for a deal until June 2, raising the stakes for a quick negotiation.

In addition, S&P downgraded the rating of Argentina's Bonar 2024 from 'C' to 'D', a title issued under Argentine law that was required to pay a coupon of US$1.6 billion on May 7.

"That payment was not made, since the title was contemplated in the decree that postponed until 2021 the bonds issued in dollars under Argentine law," the agency said.

Fitch, meanwhile, stressed that "the parties involved have reported that there are progress towards a debt restructuring. However, there is uncertainty about the possibility of reaching an agreement that has sufficient adherence from creditors."

If an agreement is reached, it would constitute a "distressed debt exchange" (DDE), according to Fitch.

"With this, the relationship with the international financial community would be normalised" and the Argentine debt rating would be raised again, the agency said.

Potential payout

According to Bloomberg, the move sets up a potential payout for traders who hold credit derivatives.

The Credit Derivatives Determinations Committee said in a statement Tuesday afternoon that it’s been asked to rule on whether a “failure to pay” credit event occurred. There were net wagers of US$1.5 billion on the nation’s debt swaps, according to the latest data compiled by ISDA.

“The parties involved have indicated recent progress toward a comprehensive restructuring, although uncertainty remains around the prospects for reaching a deal with acceptance from bondholders sufficient to meet the different thresholds set in ‘collective action clauses’ in the securities,” Fitch analysts led by Todd Martinez wrote in a statement.

Argentina is burdened by inflation nearing 50 percent and an economy that was shrinking even before the pandemic hit. The government has said Argentina needs US$40 billion in debt relief to set it back on the path to sustainable growth and officials have been in talks with bondholders for two months.

Economy Minister Martín Guzmán said in an interview last Friday that the government would improve its offer to creditors, but didn’t give any details on his plans. Discussions with creditor groups continue, he said, adding that the latest proposals from bondholders have closed the gap between the two sides.

Last week, Moody’s Investors Service maintained Argentina’s credit rating at “Ca,” a rating consistent with significant expected losses for investors as the country renegotiates its debt, Moody’s senior credit officer Gabriel Torres said.



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