- On June 30, 2014, the Republic of Argentina missed a US$539 million interest payment on its discount bonds due in December 2033. Under the terms of the discount bonds, Argentina has a 30-day grace period following the scheduled interest payment date to make payment without defaulting. Standard & Poor’s does not rate the discount bonds.
- The missed payment is the latest development arising out of Argentina’s 2005 and 2010 restructurings of its sovereign debt and the challenges to such restructurings by certain “holdout” bondholders.
- We are placing our ‘CCC-/C’ long- and short-term foreign currency sovereign credit ratings on Argentina on CreditWatch with negative implications, reflecting our assessment that there is at least a one-in-two probability that the missed payment will not be cured within the grace period.
- We will lower our foreign currency sovereign credit ratings on Argentina to selective default (‘SD’) if it fails to pay the delinquent interest on the discount bonds within the grace period or if it undertakes a debt exchange that would amount to a “distressed exchange” under our criteria.
RATING ACTION On July 1, 2014, Standard & Poor's Ratings Services placed its 'CCC-/C' unsolicited long‐ and short-term foreign currency sovereign credit ratings on the Republic of Argentina on CreditWatch with negative implications. At the same time, we affirmed our 'CCC+/C' long‐ and short‐term local currency sovereign credit ratings and 'raBB+' national scale rating on Argentina. The outlook on the long-term local currency rating remains negative. In addition, the transfer and convertibility (T&C) assessment remains 'CCC-'. RATIONALE The CreditWatch placement reflects our view of at least a one-in-two probability that Argentina will not pay the outstanding US$539 million interest payment on the discount bonds within the 30-day grace period allowed thereunder. According to our criteria (see "Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings," published Oct. 24, 2013), we may wait until the end of a grace period following a payment default if such grace period is 30 days or less and if we believe that the missed payment may be cured. In Argentina's case, although we believe that there is a greater than one-in-two chance that the delinquent payment will not be made during the grace period--or the payment will be made as a "distressed exchange" under our criteria--we have nevertheless decided to wait until the expiry of the grace period before resolving the CreditWatch because we see a sufficient chance that negotiations between Argentina and the holdout bondholders will conclude without Argentina defaulting under our criteria. In 2005 and 2010, Argentina restructured several hundred of its defaulted sovereign obligations (original obligations) through a "debt exchange" (for a description of the events leading to the restructurings, see "Argentina Long-Term Ratings Lowered to Selective Default," published Nov. 6, 2001). The bonds issued in exchange for the original obligations had, on average, a par value of less than half of the par value of the original obligations and included par bonds, quasi-par bonds, GDP-linked securities, and discount bonds due in December 2033 (discount bonds). During these two offers, 92.4% of the eligible debt was exchanged. Argentina indicated that on completion of the debt exchange, it would no longer honor untendered original obligations. Some of the original obligations were governed by New York law. Certain distressed debt funds and other investors acquiring sizable positions in the original obligations did not participate in the debt exchange and sued Argentina in the U.S. District Court in Manhattan, demanding payment under the terms of the original obligations. In 2013, the District Court agreed with these holders and ordered Argentina to pay all amounts due under the terms of the unexchanged original obligations. Argentina then offered similar terms to the ones provided in 2005 and 2010, but the holders of the defaulted debt rejected that offer. On June 26, 2014, Argentina paid the Bank of New York Mellon (BoNY), as trustee for the discount bonds, $539 million in respect of an interest payment due thereon on June 30, 2014. On June 27, holders of unexchanged original obligations asked the District Court to enforce a previous court decision to block the interest payment to holders of the discount bonds until the holders of the unexchanged original obligations received the amounts due to them. Instead, the District Court ordered BoNY to return the funds to Argentina. We understand that Argentina and original obligation bondholders may be in negotiation. The affirmation of the 'CCC+/C' local currency ratings reflects our view that the potential disruptions to payments on Argentina's external debt are not likely to further erode its ability to service debt issued in local currency under local law. We also maintained our 'CCC-' T&C assessment for Argentina as we believe it already reflects the risk that the government could further tighten its exchange control laws and policies to the extent that they impair the ability of the private sector to gain access to foreign currency to service its debt. We also think that Argentina will maintain timely payment to its multilateral creditors, as it has done in the past. CREDITWATCH If Argentina can reach an agreement with its holdout creditors and service its external debt within the grace period, we could remove the ratings from CreditWatch. Absent a payment cure, we would likely lower our foreign currency sovereign credit ratings on Argentina to selective default ('SD'). If and when Argentina resolves its issues with the holdout creditors and holders of the discount bonds--either before or after we assign a 'SD' rating for the June 30 missed payments--we could raise our ratings on Argentina, potentially to the high 'CCC' or low 'B' categories. This future assessment would depend on our appraisal of residual litigation risk, Argentina's access to international debt markets, and, more broadly, its credit profile at that time. KEY STATISTICS
|Republic of Argentina–Selected Indicators|
|Nominal GDP (US$ bil.)||262.5||328.1||308.7||370.3||448.2||452.1||468.8||438.8||397.9|
|GDP per capita (US$)||6,669||8,256||7,707||9,078||10,862||10,832||11,121||10,308||9,253|
|Real GDP growth (%)||8.7||6.8||0.9||9.2||8.9||1.9||3.0||(1.0)||0.0|
|Real GDP per capita growth (%)||7.6||5.7||0.1||7.2||7.6||0.7||2.0||(2.0)||(1.0)|
|Change in general government debt/GDP (%)||4.5||4.8||5.1||6.6||7.4||10.0||8.3||16.7||10.7|
|General government balance/GDP (%)||0.6||(0.1)||(1.9)||(0.7)||(3.3)||(2.5)||(3.2)||(3.8)||(3.5)|
|General government debt/GDP (%)||59.3||51.5||51.5||47.5||44.6||47.9||44.8||50.1||48.4|
|Net general government debt/GDP (%)||55.9||46.5||47.0||41.5||39.4||42.5||38.8||47.4||46.3|
|General government interest expenditure/revenues (%)||7.7||7.1||7.1||5.1||6.6||6.2||6.3||7.0||6.7|
|Other dc claims on resident nongovernment sector/GDP (%)||14.0||13.2||13.1||14.3||16.6||18.6||17.9||17.9||17.9|
|CPI growth (%)||8.8||8.6||6.3||10.9||9.5||10.8||10.9||35.0||33.0|
|Gross external financing needs/CARs plus usable reserves (%)||81.4||76.1||67.6||75.7||79.0||82.5||88.0||89.1||96.7|
|Current account balance/GDP (%)||2.8||2.0||3.6||0.4||(0.5)||0.0||(1.7)||(0.2)||(0.2)|
|Current account balance/CARs (%)||10.1||7.4||15.1||1.7||(2.1)||0.0||(7.9)||(0.8)||(1.0)|
|Narrow net external debt/CARs (%)||72.9||52.4||54.9||51.7||52.1||55.9||66.0||78.0||76.9|
|Net external liabilities/CARs (%)||(38.0)||(37.7)||(66.5)||(52.3)||(44.1)||(39.7)||(35.7)||(29.7)||(32.5)|
|Note: Other depository corporations (dc) are financial corporations (other than the central bank) whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private-sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial-sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. The data and ratios above result from Standard & Poor’s own calculations, drawing on national as well as international sources, reflecting Standard & Poor’s independent view on the timeliness, coverage, accuracy, credibility, and usability of available information. CARs–Current account receipts. e–Estimate. f–Forecast.|
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