After the debt swap, a rating agency lowered Argentina’s note to selective default

As it had done a few months ago, the global risk rating agency Standard & Poor’s cut the Argentine debt note in pesos to selective default after the debt swap carried out by the Government.

In a statement, the S&P said that “Argentina’s local currency rating downgraded to ‘SD’ on another struggling exchange; ‘CCC-‘ foreign currency rating confirmed”.

The agency explained that “Argentina announced a debt-for-peso swap aimed at boosting maturities from June to September beyond this year’s elections through 2024 and 2025 by offering a mix of inflation-linked and dual (inflation-linked and rate-linked) securities. of exchange) denominated in pesos”.

“In line with the debt exchanges in pesos carried out in January and March, we believe that this transaction is in distress based on conventional probability of default (absence of creditor participation) given the sovereign’s pronounced macroeconomic vulnerabilities and its limited ability to extend maturity and place paper on the local market without relying on exchanges,” it added.

At the same time, it considered that “a distressed change is tantamount to a default and, as a result, We have downgraded our Argentine local currency sovereign credit ratings to ‘SD/SD’ from ‘CCC-/C’. We affirm our ‘CCC-/C’ foreign currency ratings. Upon completion of the debt exchange, we will likely upgrade our long-term local currency rating to ‘CCC’.”

“The negative long-term foreign currency rating outlook reflects the risks surrounding pronounced economic imbalances and political uncertainties before and after the 2023 national elections,” it added.

It should be recalled that on June 8, 2023, S&P Global Ratings “lowered its Argentine local currency sovereign issuer credit ratings to ‘SD/SD’ from ‘CCC-/C’ and its national scale rating to ‘SD’ from ‘raCCC+’ None of our bond issue ratings are affected We affirm our ‘CCC-/C’ foreign currency sovereign issuer credit ratings on Argentina The long-term foreign currency rating outlook remains negative Our transfer and convertibility assessment ‘CCC-‘ has not changed”.

Debt Outlook

“The negative outlook on the long-term foreign currency rating reflects the risks surrounding pronounced economic imbalances and political uncertainties before and after the 2023 national elections. Divisions within the governing coalition and infighting among the opposition limit the sovereign’s ability to implement timely changes in economic policy,” S&P said. .

remembered that “Global capital markets are closed to Argentina. Swaps are being deployed in the local market to manage large maturities, complementing traditional auctions to place debt. The central bank continues to play a key role in supporting local debt management in the secondary market.

“We could lower the foreign currency ratings over the next six to 12 months due to unexpected negative policy due to political events undermining already limited access to financing, further complicated by the severe drought. In particular, setbacks under the Expanded Facility Fund (EFF) that reduce access to financing from the IMF and, potentially, other multilateral lending institutions. This scenario would likely influence modest foreign currency commercial debt service.”

In addition to “further aggravating local investor confidence and access to peso-denominated debt markets, exacerbating the risks associated with recourse to central bank financing amid already triple-digit inflation, could lead to a downgrade. Increased pressure on local financial markets, including the banking system’s deposit base, or difficulties in central bank debt management (LELIQ), could also lead to a downgrade,” he said.

In any case, the firm clarified that “Upon completion of the local currency debt swap and issuance of new securities, we will likely upgrade our long-term local currency rating to the ‘CCC’ category, at which point we would consider the default to be ‘cured’. according to our criteria.