S&P cuts Argentina credit rating to selective default

S&P cuts Argentina credit rating to selective default

Debt Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Argentina Latin America Coronavirus

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S&P Global downgraded its sovereign foreign currency credit rating for Argentina on Tuesday to selective default, citing the government's decision to postpone payments on $9.8 billion worth of local-law, US dollar-denominated bonds until December 31, 2020, at the latest.

Buenos Aires' decision to postpone the payments occurred just prior to the government's decision to extend a lockdown order in the hope of mitigating the spread of the novel coronavirus, COVID-19. 

"The COVID-19 crisis has exacerbated Argentina's already stressed fiscal needs and resources, leading the administration of President Alberto Fernandez to reconfigure its financial planning and budgetary priorities," S&P said in a statement.

"We view this unilateral extension as tantamount to default under our criteria. The decree formally differentiates Argentine-law dollar-debt from foreign-law foreign-currency-denominated debt," S&P said, adding: "The foreign-law commercial debt is currently under an active restructuring process led by Lazard Ltd. (the financial adviser), as well as HSBC Holdings plc and Bank of America Corp. (the placement agents)," it said.

The move mirrors similar actions taken by Fitch Ratings on Monday, which put Argentina at restricted default. Moody's Investors Service cut Argentina deeper into junk territory on Friday, citing the firm's expectation that private creditors will incur losses as a result of the government's efforts to restructure its sovereign debt. 

S&P believes the likelihood of another foreign-currency default is "virtually certain."

"Our credit ratings on Argentina reflect its unfavorable debt dynamics and fiscal profile, a volatile exchange rate (which remains under depreciating pressure, as do most emerging market currencies), high inflation, and a deep economic recession," the firm said, adding it also accounts for a deteriorating financial environment and "strained investor confidence."

COVID-19 has infected 1,628 people in Argentina, killing 56 as of Tuesday evening.