Standard & Poor’s cut its long-term sovereign foreign currency credit rating on Argentina to CCC-plus from B-minus in the wake of a US appellate court upholding an order for Buenos Aires to pay holdout investors on unrestructured debt.
The outlook on the credit remains negative, the ratings agency said in a statement. S&P also lowered its unsolicited short-term ratings on Argentina to C from B.
The US Second Circuit Court of Appeals on Aug. 23 upheld a lower court’s ruling, but put a stay on the order pending an appeal to the US Supreme Court.
«We are lowering our ratings on Argentina because of increased risks to debt service stemming from a lawsuit over the debt the government of Argentina still maintains in default,» S&P said.
«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,» the agency said.
If there is a disruption in payments or a different debt swap is undertaken, S&P said it would lower the rating on Argentina to SD, also known as selective default.
On Sept. 6, Argentina urged the appeals court to reconsider its ruling which upheld the order for it to pay $1.33 billion to investors who chose to hold out from two debt exchanges in 2005 and 2010.
About 93 percent of Argentina’s bonds were restructured with holders receiving between 25 cents to 29 cents on the dollar.
No comment from Argentina’s Finance Ministry was immediately available.
The holdout investors, led by Paul Singer’s Elliott Management Corp affiliate NML Capital and Aurelius Capital Management have fought in US courts for full repayment on bonds they own which have been in default since 2001.
If Argentina – which has vowed never to pay the holdouts – fails to get the ruling overturned in the appeals process, the order bars the transfer of money to investors who participated in the exchanges if the holdouts are also not paid their award.
Investors are bracing for a potential default on approximately $24 billion in restructured debt if Argentina elects not to pay the holdouts.
The cost to insure a $10 million portfolio of Argentine sovereign bonds against default or restructuring is currently $2.516 million annually for five years, down from $2.614 million on Monday, according to data provider Markit.
«A decision by the US Supreme Court not to hear the appeal or the implementation of an exchange proposal that makes alternative payment arrangements that, in our view, materially alter the terms of its bond indentures to the detriment of creditors could prompt a downgrade,» S&P added.
Source: Buenos Aires Herald