Credit risk assessor Standard & Poor’s downgraded Argentina’s local currency rating to ‘SD’ (selective default) on the grounds that this week’s debt swap was done on terms that were disadvantageous to creditors.
The news assumes a setback for the strategy of Minister Sergio Massa postponing, voluntarily and without compulsive reprofiling, the maturities of the debt in pesos, today a major problem for public finance.
S&P explained in a statement released this afternoon that the Argentine government carried out a third swap of local debt into Argentine pesos earlier this week, in which it offered a mix of nominal, inflation-linked and dual-bond instruments to reduce the maturities in pesos during the first quarter, to transfer them mainly to the second and third quarters of 2023.
“Unlike the two previous swap transactions, we believe that this transaction takes place on disadvantageous terms (distressed) based on the probability of default conventional (in the absence of creditor participation) given by the sovereign’s marked macroeconomic vulnerabilities and its very limited ability to extend maturities and place debt on the local market without continuous dependence on swaps” S&P reiterates that, in its opinion, “an exchange in disadvantaged conditions equals default.
In this context, the rating agency stressed that “we have downgraded our long-term and short-term local currency sovereign ratings of Argentina to ‘SD’ and ‘SD’ from ‘CCC-‘ and ‘C’, respectively, and affirmed our long-term and short-term foreign currency ratings in ‘CCC+’ and ‘C’ respectively”.
Finally, they warn that the negative trend in the foreign currency’s long-term rating reflects risks related to pronounced economic imbalances and political uncertainty before and after the 2023 national elections.
The refinancing of the debt in pesos takes place with the help of the public sector. It is estimated that more than half of the debt is already held by the Central Bank, the Anse guarantee fund, public banks, provinces and municipalities. It’s the flip side of private lenders shying away from debt securities that yield more than 100% a year but have a high risk of default before or after a government change.
Source: Clarin
