New York, November 24, 2015 -- Moody's Investors Service (Moody's) has today changed the outlook on Argentina's
Caa1 issuer rating to positive from stable. The outlook on Argentina's
(P)Caa2 foreign legislation and restructured local legislation foreign
currency obligations is also changed to positive from stable. The
outlook change is based on Moody's view that the accession of president-elect
Mauricio Macri of the Cambiemos ("Let's Change") coalition
will raise the probability of credit positive policies being implemented,
including arriving at a resolution with holdout creditors, one of
Argentina's key credit constraints.
At the same time, Moody's has affirmed Argentina's Caa1/NP and (P)Caa2
ratings, as well as the Ca rating on the original defaulted bonds.
The (P)Caa2 rating on the foreign legislation and restructured local legislation
foreign currency obligations reflects the likelihood of higher losses
to investors from the continuing default of bonds caught in the ongoing
legal proceedings in US courts, thereby differentiating this portion
of Argentina's debt from the rest.
RATINGS RATIONALE
The main driver of the outlook change to positive from stable is Moody's
expectation that Argentina's policy stance will become more credit
positive in the aftermath of Sunday's elections in which Mauricio
Macri was elected Argentina's president for the 2015-19 term.
Running as the nominee of the Cambiemos coalition -- an alliance
of non-Peronist parties -- Mr. Macri won with 51.4%
of the vote, narrowly beating out Daniel Scioli, would-be
successor of outgoing Peronist President Cristina Fernandez de Kirchner.
President-elect Macri will take office on 10 December, becoming
only the third non-Peronist President since 1983. Mr.
Macri has consistently and increasingly made clear his administration's
policies will represent a major market-friendly break from those
observed during the last 12 years.
A prompt resolution of the holdout saga is a key Macri pledge in this
regard, and is required for the government to borrow abroad,
which it will probably need to do in order to meet upcoming debt service
obligations. Official reserves have fallen to below $22
billion, raising uncertainty about the government's ability
to meet 2016 debt service obligations and adding pressure for a swift
resolution with holdout creditors.
In addition, we expect the new administration to devote efforts
to improving the economic and institutional environment over the coming
months, through a series of reforms aimed at tackling persistently
high levels of inflation and lack of data accountability.
At around 25%, Argentina's inflation rate is one of
the highest in the region and among sovereigns rated by Moody's.
The new government aims to install new central bank leadership,
make inflation reduction a key policy goal, and legally establish
central bank independence.
The incoming administration has also promised to improve the reliability
of official economic statistics which have increasingly diverged from
private sector estimates since 2007. Macri has pledged to make
the statistical institute fully independent.
Argentina's Caa1 rating balances the country's medium economic strength
and moderate government debt metrics with ongoing institutional and financial
weaknesses linked to the country's policy mix, political volatility,
and limited funding options. The decision to affirm, rather
than raise, Argentina's ratings at this time reflects the
uncertainty that remains around when Argentina might reach agreement with
holdout creditors, and over how much fiscal and economic reform
is likely to be achieved. The incoming administration lacks its
own legislative majority but Cambiemos candidates won key posts across
the country, and Argentina's president retains significant
influence through its control of the country's national finances.
WHAT COULD MOVE THE RATING UP
A further positive rating action is dependent on the nature of future
policy announcements and the anticipated pace of implementation.
Resolution with holdout creditors would likely prompt a positive action
on the (P)Caa2 rating assigned to foreign legislation and restructured
local legislation foreign currency obligations. Likewise,
a clear and credible plan for implementing economic and fiscal reforms
would add to upward pressure on the Caa1 issuer rating.
WHAT COULD MOVE THE RATING DOWN
A return to a stable outlook, or other negative rating actions,
could arise from 1) a slower resolution of the holdout issue than we currently
anticipate, or 2) a business-as-usual policy scenario
in which international reserves continue to decline and government debt
ratios continue to increase. A negative rating action on Argentina's
foreign legislation bonds and restructured local legislation foreign currency
obligations could result if Argentina's current default due to US court
rulings become so prolonged as to lead to losses greater than 20%
for investors.
COUNTRY CEILINGS
As a result of this rating action, the long-term foreign
currency bond ceiling is unchanged at Caa1, while the short-term
foreign currency bond ceiling is unchanged at NP. The long-term
foreign currency deposit ceiling is unchanged at Caa2, while the
short-term foreign currency deposit ceiling remains at NP.
The long-term local currency bond and deposit ceilings are unchanged
at B1, while the short-term local currency bond and deposit
ceilings remain unchanged at NP.
Outlook Actions:
..Issuer: Argentina, Government of
....Outlook, Changed To Positive From
Stable
Affirmations:
..Issuer: Argentina, Government of
.... Issuer Rating (Foreign Currency),
Affirmed Caa1
.... Issuer Rating (Local Currency),
Affirmed Caa1
....Senior Unsecured Short-Term Rating,
Affirmed NP
....Senior Unsecured Short-Term Rating
(Local Currency), Affirmed NP
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)Ca
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)NP
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Mar 31, 2023, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Mar 31, 2023, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Jan 30, 2017, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Jul 21, 2030, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Jun 19, 2031, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Jun 19, 2018, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Jan 31, 2031, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Sep 19, 2027, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Nov 13, 2026, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Sep 19, 2016, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Feb 25, 2019, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Mar 31, 2023, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Mar 31, 2023, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due Feb 1, 2020, Affirmed Ca
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency) due May 28, 2028, Affirmed Ca
....Senior Unsecured Shelf (Foreign Currency),
Affirmed (P)Ca
....Senior Unsecured Shelf (Foreign Currency),
Affirmed (P)Caa2
....Senior Unsecured Shelf (Foreign Currency),
Affirmed (P)Caa1
GDP per capita (PPP basis, US$): 22,302 (2014
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 0.5% (2014 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 23.9%
(2014 Actual)
Gen. Gov. Financial Balance/GDP: -2.5%
(2014 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -1.1% (2014 Actual)
(also known as External Balance)
External debt/GDP: 26.3% (2014 Actual)
Level of economic development: Low level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 23 November 2015, a rating committee was called to discuss the
rating of Argentina, Government of. Views raised included:
The issuer's governance and/or management, have materially increased.
The systemic risk in which the issuer operates has materially decreased.
The issuer has become less susceptible to event risks. The issuer's
fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in September 2013. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Gabriel Torres
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Anne Van Praagh
MD - Sovereign Risk
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Argentina's outlook to positive from stable; Caa1/(P)Caa2 ratings affirmed
