S&P GR Downgrades Argentina To 'SD' (Selective Default)

Press Release from S&P Global Ratings:

 

OVERVIEW -- Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on Aug. 28.

This constitutes default under our criteria, and we are lowering the local and foreign currency sovereign credit ratings to 'SD' and the short-term issue ratings to 'D'.

-- The administration is also sending legislation to Congress seeking support from the Argentine political class to engage in a re-profiling of the remaining debt, so we are lowering our long-term foreign and local currency issue ratings to 'CCC-' on heightened risk of a default under our criteria.

-- As the new terms for short-term debt have become effective already, we plan to raise the sovereign credit ratings from 'SD' on Aug. 30. We plan to raise the long-term sovereign credit ratings to 'CCC-' and the short-term sovereign credit ratings to 'C'. RATING ACTION On Aug. 29, 2019, S&P Global Ratings lowered its sovereign credit ratings on Argentina to 'SD' from a long-term rating of 'B-' and a short-term rating of 'B' (our criteria do not distinguish on short or long term when there is a default).

We also took the following rating actions:

-- We lowered our short-term issue ratings to 'D' from 'B'; -- We lowered our long-term issue ratings to 'CCC-' from 'B-';

-- We lowered our transfer and convertibility assessment on Argentina to 'B-' from 'B'; and -- We lowered our national scale rating on Argentina to 'SD' from 'raAA-'and removed it from CreditWatch with negative implications, where we placed it on Aug. 16.

RATIONALE

Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on Aug. 28. Under our distressed exchange criteria, and in particular for 'B-' rated entities, the extension of the maturities of the short-term debt with no compensation constitutes a default.

As the new terms became effective immediately, the default has also been cured. Therefore, we plan to raise the long-term ratings to 'CCC-' and the short-term ratings to 'C' on Aug. 30, in line with our policies. Lowering the long-term issue ratings on Argentina to 'CCC-' from 'B-' reflects heightened risk of another distressed exchange as the Macri Administration seeks approval from Congress to engineer a possible maturity extension of all long-term debt in the remainder of its current term in office.

This action is in line with our 'CCC' rating criteria and distressed exchange criteria as we see the most likely scenario as an extension of maturities, which will not be compensated by the issuer. Alternatively, there are risks associated with failure to advance, and prospects for ongoing stressed market dynamics post the national elections. We lowered our transfer and convertibility assessment to 'B-' from 'B'.

The transfer and convertibility assessment remains higher than the sovereign rating because the government aims to avoid capital controls and preserve international reserves with its action on short-term debt and potential action on long-term debt. The heightened vulnerabilities of Argentina's credit profile stem from the quickly deteriorating financial environment, the absence of confidence in the financial markets about policy initiatives under the next administration--elections are not until October--and the inability of the Treasury to roll over short-term debt with the private sector.

This has immensely stressed debt dynamics amid a depreciating exchange rate, a likely acceleration in inflation, and a deepening economic recession. These factors have stressed capacity to pay, leading to the maturity extension of short-term debt. The challenges confront the ability of both the current administration and the leading presidential candidate to contain market volatility and restore financial and economic stability. (Please see our latest research update on Argentina, titled "Argentina Long-Term Sovereign Ratings Lowered To 'B-' As Market Turbulence Weakens Creditworthiness; Outlook Negative," published Aug. 16, 2019.)

KEY STATISTICS RELATED CRITERIA

-- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018 -- Criteria | Governments | Sovereigns: Sovereign Rating Methodology, Dec. 18, 2017

-- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 -- General Criteria: Post-Default Ratings Methodology: When Does S&P Global Ratings Raise A Rating From 'D' Or 'SD'?, March 23, 2015

-- General Criteria: Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Oct. 24, 2013 -- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012 -- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- General Criteria: Methodology: Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009

-- General Criteria: Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009 RELATED RESEARCH -- Banking Industry Country Risk Assessment Update: August 2019, Aug. 27, 2019 -- Argentina Long-Term Sovereign Ratings Lowered To 'B-' As Market Turbulence Weakens Creditworthiness; Outlook Negative, Aug. 16, 2019 -- Sovereign Ratings History, Aug. 7, 2019

-- Argentina Long-Term 'B' Sovereign Credit Ratings Affirmed; Outlook Remains Stable, Aug. 1, 2019 -- Banking Industry Country Risk Assessment: Argentina, July 30, 2019

-- Global Sovereign Rating Trends: Midyear 2019, July 25, 2019 -- S&P Global Ratings' National And Regional Scale Mapping Specifications, June 25, 2018

-- 2018 Annual Sovereign Default And Rating Transition Study, March 15, 2019 -- Sovereign Debt 2019: Latin American And Caribbean Commercial Borrowing Is Likely To Remain Stable At $322 Billion, Feb. 21, 2019

-- Argentina Long-Term Ratings Lowered To 'B'; Outlook Is Stable, Nov. 12, 2018

-- Sovereign Risk Indicators, also available at " www.spratings.com/sri  " In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research').

At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.

The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see 'Related Criteria And Research').

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com  for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com  .

All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com  . Use the Ratings search box located in the left column.

Primary Credit Analyst: Lisa M Schineller, PhD, New York (1) 212-438-7352; lisa.schineller@spglobal.com Secondary Contacts: Joydeep Mukherji, New York (1) 212-438-7351; joydeep.mukherji@spglobal.com Sebastian Briozzo, Buenos Aires (54) 114-891-2185; sebastian.briozzo@spglobal.com Media Contact: Miriam Hespanhol, New York + 1 (212) 438 1406; miriam.hespanhol@spglobal.com The article with statistical information is available in full at www.standardandpoors.com . Registration is free.

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