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Rating Action:

Moody's downgrades Argentina to Ca, changes outlook to negative

03 Apr 2020

New York, April 03, 2020 -- Moody's Investors Service, ("Moody's") has today downgraded the Government of Argentina's foreign-currency and local-currency long-term issuer and senior unsecured ratings to Ca from Caa2. The senior unsecured ratings for shelf registrations were also downgraded to (P)Ca from (P)Caa2. The outlook on these ratings has been changed to negative from ratings under review. This concludes the review for downgrade that was initiated at the time of the 30 August 2019 rating action.

The Ca rating reflects Moody's expectation that private creditors will likely incur substantial losses in the current government debt restructuring process as the economic and financial shock stemming from the pandemic compounds the funding stress that forces the government to reduce its upcoming debt payments obligations in the coming years.

The negative outlook reflects the risk that investor losses under the government debt restructuring may be beyond levels consistent with a Ca rating, which typically captures losses of up to 65%.

At the same time Argentina's short-term rating was affirmed at Not Prime (NP). The senior unsecured ratings for government bonds that were not restructured after the 2001/2 default were affirmed at Ca.

Argentina's long-term foreign-currency bond ceiling was changed to Caa3 from Caa1 and the foreign-currency deposit ceiling changed to Ca from Caa2. The local-currency country ceilings for bonds and bank deposits were changed to Caa1 from B2. The short-term foreign-currency bank deposit ceiling and the short-term foreign-currency bond ceiling remain unchanged at Not Prime (NP).

RATINGS RATIONALE

LACK OF MARKET ACCESS AND LIQUIDITY STRESS AGRAVATED BY THE CORONAVIRUS SHOCK POINTS TO A DEBT RESTRUCTURING THAT WILL RESULT IN SUBSTANTIAL LOSSES TO PRIVATE INVESTORS

Argentina's government has initiated the process of restructuring about $100 billion in market debt held by private investors as lack of market access has made it impossible to service its debt as currently scheduled. Moody's expects a combination of extension of maturities, lower interest rates and reductions on principal amounts such that losses to investors ultimately be substantial and likely to be consistent with a Ca rating, which typically captures losses between 35% and 65%.

Earlier this year the government published a timetable for the restructuring of its debt, which was set to finalize by the end of March. On 31 March the government published the debt sustainability guidelines that it will use in the debt discussions with bondholders. Moody's expects that implementation of the restructuring plan will take weeks, and possibly months, to be agreed on by all parties involved. More importantly, the coronavirus pandemic, which the rating agency considers a social factor under its ESG framework, will only compound the already deep economic and budgetary challenges facing the government, ultimately adding to the funding stress and the level of losses likely to be incurred by bondholders.

Argentina's total debt as of year-end 2019 was $323 billion dollars, according to government figures. But the government plans to restructure only foreign currency debt held by private investors, estimated by the International Monetary Fund (IMF) to reach about $97 billion, including both domestic and foreign legislation obligations. The remainder of the debt is owed to multilateral or bilateral agencies, including the IMF, as well as debt owed to other government entities. Although the government has indicated it plans to restructure only foreign currency debt Moody's believes that some of the peso debt held by private creditors may also be restructured. On February the government postponed the payment of a peso-payable bond due that month to September of this year after it failed to raise the necessary funds in the domestic peso market.

Argentina has large upcoming payments to the IMF, reaching over $20 billion per year in 2022/23. Argentina will need to extend those payments over time but that will require reaching agreement on a new program with the IMF, which is unlikely until the debt restructuring with the private sector is finalized and the new debt profile is deemed by the Fund as sustainable. The IMF recently estimated that debt sustainability will require Argentina to bring down total annual debt service to private creditors and multilateral and bilateral lenders, including both principal and interest, to no more than 6% of GDP. In Moody's view, such a restructuring is likely to require substantial losses to investors. Moody's definition of a debt default includes only payments to private creditors, not multilateral or bilateral agencies.

RATIONALE FOR THE NEGATIVE OUTLOOK

The negative outlook reflects the risks that investor losses under the government debt restructuring may go beyond a level consistent with a Ca rating, which typically captures losses of up 65%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

As a major agricultural exporter, Argentina is moderately exposed to environmental risks. Agricultural exports, which represent over 50% of the total, are vulnerable to regular climate-related shocks. In 2018, a major drought was a key factor in that year's economic crisis, robbing the government of needed foreign-exchange revenue and contributing to a 2.5% contraction in economic activity.

Social risks also inform our assessment of Argentina's credit profile. Argentina has a long history of social protests leading to abrupt policy changes and the current economic crisis could exacerbate those trends. The economic and employment impact of the coronavirus crisis, which will be substantial and coming after two consecutive years of economic recession, will further raise the risks of social protests and political turmoil. Moody's also regards the coronavirus outbreak, the consequences of which for Argentina's credit profile drive this rating action, to be a social risk under our ESG framework given the substantial implications for public health and safety.

In terms of governance, Argentina's weak institutional framework is underpinned by a history of unpredictable and unsustainable policymaking. Our analysis also incorporates the country's track record of default and limited success in controlling high inflation.

GDP per capita (PPP basis, US$): 20,551 (2018 Actual) (also known as Per Capita Income)

Real GDP growth (% change): -2.5% (2018 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 47.6% (2018 Actual)

Gen. Gov. Financial Balance/GDP: -5.2% (2018 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -5.2% (2018 Actual) (also known as External Balance)

External debt/GDP: 53.5% (2018 Actual)

Economic resiliency: b2

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 31 March 2020, a rating committee was called to discuss the rating of the Argentina, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have materially decreased. The issuer has become increasingly susceptible to event risks.

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

Moody's would consider stabilizing the outlook if financing conditions stabilize and the anticipated losses to private creditors from debt restructuring are less than currently forecast. Post debt restructuring, upward pressure could emerge if the new debt profile were to be deemed sustainable and supported by a credible policy path to fiscal consolidation and economic reforms.

Moody's would downgrade the rating in the event the ongoing debt restructuring results in losses over 65% to private creditors, which is inconsistent with the current rating.

The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies 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 credit rating action, if applicable.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to one of the credit rating outcomes announced and described above.

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.

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
Sovereign Risk Group
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

Yves Lemay
MD - Sovereign Risk
Sovereign Risk 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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