2024-03-14 14:43:00
The risk rating agency Standard & Poor’s (S&P) downgraded Argentina’s sovereign credit rating to “selective default”following the mega debt exchange in pesos, equivalent to regarding US$55.3 billion, promoted by the government of Javier Milei and, specifically, by the Minister of Economy, Luis Caputo.
“We downgrade our Argentine local currency ratings to SD (selective default) following the announcement of a debt exchange denominated in pesos that we consider distressed and not opportunistic. We consider that the exchange it’s problematic due to the poor government access to the market and our prediction that, in the absence of participation, is likely to occur a conventional default“, the firm said in a statement.
What of “absence of participation” is not minor, since the report emphasizes in the scarce presence of creditors outside the public spectrum in the operationconsidering that of the 77% adhesion for the $42.6 billion in securities that expired in 2024, The private sector only contributed 17.5%.
Although, from the organization, they assured that “Once the debt swap in local currency and the issuance of new securities are completed, we would consider the default in local currency to be “cured” and probably we would upgrade our long-term local currency rating to ‘CCC’“, which, in its concept, are those issuers that are currently vulnerable and that depend on favorable business, financial and economic conditions to meet their financial commitments.
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What does the Selective Default attributed by S&P mean?
According to its definition, an issuer receives the rating of ‘SD’ and S&P Global Ratings when “considers that there is a breach of one or more of its financial obligationswhether long or short-term, including qualified and unrated, but excluding hybrid instruments classified as regulatory capital or in default in accordance with the terms.”
In turn, the same is attributed when “This is considered to be a default in relation to a specific issue or class of obligations but that the issuer will continue to honor other emissions or classes of obligations within the established deadlines”.
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Rating for debt in dollars: without changes but with two possible scenarios
For its part, the rating agency S&P It kept its rating for the country’s dollar debt unchanged. However, she maintained that The outlook is negative in the long term. Said perspective of the rating in foreign currency reflects, as specified in the letter, “political uncertainties and the risks posed by large and persistent economic imbalances.”
“Disagreements between the newly elected administration of President Javier Milei, Congress and the provincial governors have so far limited the government’s ability to implement its ambitious economic reform agenda to stabilize the economy.. “Global capital markets remain closed to Argentina, leading the government to rely on the local market, using swaps to manage large maturities, as well as traditional debt auctions,” he argued.
As clarified by the entity, This might lead, during 2024, to a downgrade in the credit rating in foreign currencyalthough this will depend “if adverse political events delay economic policy and further weaken the sovereign’s already limited access to financing.”
“The loss of access to multilateral financing, especially under the IMF’s Extended Fund Facility, would severely limit the sovereign’s ability to service its modest foreign currency commercial debt service“, stated the text.
Although he also proposed a scenario in which, if the debt exchange is completed, if it is successful, might increase this rating. This will depend, in turn, on “successful execution of economic policies to continue addressing Argentina’s main structural macroeconomic imbalances, laying the foundation for better fiscal results, containment of high inflation and a sustainable economic recovery“.
“In such a scenario, the government would enjoy better access to financing voluntary market,” he concluded.
News in development…
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