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Rating Action:

Moody's assigns Ca rating to the Province of Buenos Aires proposed series A, B and C notes due 2037, affirms Ca issuer and debt ratings and changes outlook to stable from negative.

03 Sep 2021

New York, September 03, 2021 -- Moody's Investors Service ("Moody's") has assigned a Ca debt rating to the proposed New USD 2037 A Bonds, New Euro 2037 A Bonds, New USD 2037 B Bonds, New Euro 2037 B Bonds, New USD 2037 C Bonds and New Euro 2037 C Bonds to be issued by the Province of Buenos Aires in exchange of its USD 2020 Bonds, 10.875% USD 2021 Bonds, USD 2028 Bonds, Euro 2020 Bonds, USD 2035 Bonds, Euro 2035 Bonds, 9.950% USD 2021 Bonds, USD 2023 Bonds, USD 2024 Bonds, USD 2027 Bonds and Euro 2023 Bonds. Moody's also affirmed the ca baseline credit assessment, Ca issuer rating (domestic and foreign currency) and Ca debt ratings. The outlook on the ratings also changed to stable from negative.

The assigned Ca rating to the proposed notes is based on preliminary documentation received by Moody's as of the rating assignment date. Moody's does not expect changes to the documentation reviewed over this period, nor does it anticipate changes in the main conditions that the notes will carry. Should issuance conditions and/or final documentation of the notes deviate from the original ones submitted and reviewed by the rating agency, Moody's will assess the impact that these differences may have on the ratings and act accordingly.

Assignments:

Issuer: Buenos Aires, Province of

Senior Unsecured Regular Bond/Debenture, Assigned Ca

Affirmations:

Issuer: Buenos Aires, Province of

Issuer Rating, Affirmed Ca

Senior Unsecured Regular Bond/ Debenture, Affirmed Ca

Outlook Actions:

Issuer: Buenos Aires, Province of

Outlook, Changed to Stable from Negative

RATINGS RATIONALE

The assignment of a Ca rating to the proposed New USD 2037 A Bonds, New Euro 2037 A Bonds, New USD 2037 B Bonds, New Euro 2037 B Bonds, New USD 2037 C Bonds and New Euro 2037 C Bonds to be issued by the Province of Buenos Aires reflects Moody's expectation that risk to the bondholders of potential losses remains consistent with the 35%-65% range associated with Buenos Aires's Ca issuer rating despite the recent debt restructuring undertaken by the province.

On 30 August the Province of Buenos Aires announced that it had reached the necessary consent threshold to restructure approximately $7 billion of its foreign-currency debt issued under foreign legislation. The Province plans to issue the new A, B and C series of notes in exchange for its existing notes. The debt restructuring involves a consent consideration, including missed due interest, postponement of upcoming maturities and a reduction of interest payments.

Moody's notes that the debt restructuring will bring relief to Buenos Aires' finances due to a combination of a reduction in debt service of approximately $4.2 billion between 2020 and 2023, a decrease in the average coupon rate to 5.7% from 7.5% and a more comfortable maturity profile. As a result of the restructuring, Buenos Aires' debt average life was extended to about 10.6 years versus 3.2 years previously and the province will not face principal payments until 2024.

While Moody's understands that the restructuring will alleviate the province's liquidity pressures until 2024, when principal payments are due and debt service spikes markedly, in Moody's view the risk of future debt restructurings remains high. Moody's considers that Buenos Aires' ability to meet debt payments when these are set to rise materially remains uncertain because of Moody's expectation of restricted market access, a difficult operating environment and tight liquidity.

The affirmation of the ca baseline credit assessment and Ca debt and issuer ratings of the Province of Buenos Aires reflects Moody's expectation that the province will continue to face multiple perennial credit challenges. These include high working capital needs due to its large payroll and service offerings, large capital expenditure needs and elevated poverty and unemployment. Moreover, since the exchange does not involve principal haircuts and capitalizes past missed interest payments, the province will still face relatively high leverage and significant exposure to foreign currency debt.

In addition, Moody's notes that Buenos Aires is very heavily exposed to the challenging operating environment for Argentine issuers. Moody's views that the Government of Argentina's (Ca stable) recurrent economic imbalances will strain market access, making it difficult for the province to refinance its maturities in 2024 when the first principal payments are due. Moody's expects Argentina's economy to rebound by about 5% this year after contracting nearly 10% in 2020. Moody's estimates growth will moderate to 2% in 2022 as favorable base effects subside and macroeconomic imbalances grow. While inflationary pressures have been at least partly subdued recently, Moody's still expects very high inflation of 50% for 2021 and 40% for 2022. Also, remaining external risks such as foreign exchange rate pressures create challenges for issuers with a high exposure to foreign currency debt such as Buenos Aires.

Counterbalancing the credit challenges mentioned above, Buenos Aires benefits from a large and diversified economic base that supports a high share of own source revenue, moderate support from the sovereign and ample access to the local capital market.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook captures Moody's expectation that economic and financial pressure faced by the Province of Buenos Aires will not differ materially over the next 12-18 months and therefore lead to fiscal pressure consistent with recent results. Buenos Aires will likely continue to face a heightened likelihood of further debt mispayments, with losses to bondholders consistent with levels captured in the Ca rating.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental considerations are not material to the credit profile as neither spending nor revenue intake are likely to be affected by environmental changes at this time. Nevertheless, social considerations are material to the credit profile of the province. The province's social risk profile is similar to that of other Regional and Local Governments (RLGs) in Argentina, with exposure to rising social demands driven by falling purchasing power and increased poverty and unemployment. The expected further deterioration in these indicators, coupled with social discontent and pressure from labor unions amid unrelenting inflation levels and an economic environment strained by the coronavirus pandemic, will erode the province's tax collection abilities and require an increase in social spending and personnel expenses, which represent about 50% of its operating expenses.

Moody's views governance considerations as material to the credit profile. Argentine RLGs typically do not reach their budget targets and adopt weak governance practices, such as regular borrowing for operating deficits or incurring unhedged foreign-currency debt. The province has incurred significant foreign-currency debt, which, among other factors, has recently led to debt restructuring. Moreover, Moody's governance evaluation for Argentine RLGs incorporates information transparency considerations. As the available public information is typically of low quality, issuers in general do not publish forward-looking assumptions and financial reports are not audited by independent auditing firms. In the case of the Province of Buenos Aires, Moody's assigns the weakest score under their Regional and Local Governments rating methodology to the investment and debt management, and transparency and disclosure factors. Buenos Aires' quality of information is also weak compared with peers, as information is often published with delays and with less details.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the strong macroeconomic and financial linkages between Argentine Sub-sovereigns and the Government of Argentina, which currently carries a stable outlook, Moody's does not expect upward pressures in the near to medium term for the Province of Buenos Aires. Nevertheless, Moody's would consider an upgrade if financing conditions stabilize and the anticipated losses to private creditors in future debt restructurings are less than currently forecast.

Alternatively, a downgrade in Argentina's bond ratings and/or further systemic deterioration could exert downward pressure on the ratings. Increased idiosyncratic risks could also translate into a downgrade. Moody's would also downgrade the ratings in the event a debt restructuring results in losses greater than those reflected in the current ratings.

The principal methodology used in these ratings was Regional and Local Governments published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091595. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ursula Cassinerio
Analyst
Sub-Sovereign Group
JOURNALISTS: 1 800 666 3506
Client Service: 1 212 553 1653

Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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