By Stephen Nakrosis
Fitch Ratings on Friday said it has downgraded Argentina’s Long-Term Foreign Currency Issuer Default Rating to C from CCC-, following executive action which “forces domestic public-sector entities into operations involving their holdings of sovereign debt securities.”
According to Fitch, the executive decree “would involve unilateral exchanges and forced currency conversion that constitute default events under Fitch’s criteria.” Fitch said the C rating reflects its view that “default is thus imminent.” Upon execution of the exchanges, the rating would be downgraded to Restricted Default, or RD, Fitch said.
On March 22, the Argentine government issued two decrees that force certain public-sector entities to enter into a series of operations involving sovereign debt securities, Fitch said.
According to Fitch, the decrees will require public sector creditors to exchange foreign-law USD sovereign bonds for domestic-law bonds that settle in pesos. The creditors will also be required to sell their holdings of domestic-law USD bonds on the secondary market, with 70% of proceeds going to buy new peso securities from the government.
Other impacts of the decrees include allowing debt service on non-marketable USD securities held by the central bank to be paid for with new peso securities, Fitch said.
Fitch also said the decrees don’t set out a timetable for these actions. “While they specify the public-sector creditors that could be affected, it is possible that some discretion could be exercised regarding who will be forced to participate, as well as when and for how much” according to Fitch.
Opposition parties in the congress have expressed disapproval of the decrees and have some legislative means of overturning them, Fitch said, adding “it remains unclear if they will effectively pursue this course of action.”
Fitch also said it affirmed Argentina’s Long-Term Local Currency IDR at CCC-.
Write to Stephen Nakrosis at stephen.nakrosis@wsj.com
(END) Dow Jones Newswires
03-24-23 1421ET
