New York, August 30, 2019 -- 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 Caa2 from B2.
The senior unsecured ratings for shelf registrations were also downgraded
to (P)Caa2 from (P)B2. The outlook on these ratings has been changed
to ratings under review from negative.
Moody's decision to downgrade Argentina's ratings reflects the rising
expectation of losses for investors as a consequence of mounting pressures
on the government's finances, most recently reflected in the
government's August 28 decision to delay repayment on over $8
billion of short-term debt and to signal its intent also to restructure
portions of Argentina's medium and long term debt.
The decision to downgrade to Caa2 ratings reflects Moody's current
assessment of losses expected should any restructuring involve a relatively
limited reprofiling of debt maturities. The decision to place the
Caa2 ratings under review for further downgrade reflects the strong downward
risk bias, given the uncertainties associated with such restructurings.
At the same time Argentina's short-term rating was affirmed at
Not Prime (NP). The senior unsecured ratings for unrestructured
debt were affirmed at Ca and the unrestructured senior unsecured shelf
affirmed at (P)Ca. Those ratings are not affected by the review
for downgrade, the NP short-term rating already being at
the lowest point in the rating agency's short-term rating
scale and Ca on the government's bonds that were never restructured
appropriately capturing expected losses for the holders of those bonds.
Argentina's long-term foreign-currency bond ceiling was
changed to Caa1 from B1 and the foreign-currency deposit ceiling
changed to Caa2 from B3. The local-currency country ceilings
for bonds and bank deposits were changed to B2 from Ba2. The short-term
foreign-currency bank deposit ceiling and the short-term
foreign-currency bond ceiling remain unchanged at Not Prime (NP).
RATINGS RATIONALE
On 12 July, Moody's changed the outlook to negative on Argentina's
long-term issuer and senior unsecured ratings to reflect rising
uncertainty regarding policy intentions and the consequences for investor
confidence. Since then, two key events have occurred.
First, the outcome of the national primary elections (the 'PASO')
in August implied a high probability of a victory in the October presidential
election for the opposition candidate, Alberto Fernandez,
and his running mate, Cristina Fernandez de Kirchner. That
outcome led to a severe market reaction which in turn raised the government's
debt load, lowered debt affordability, and reduced funding
sources.
Second and as a consequence, the government has now announced delays
in the repayment of more than $8 billion of short-term debt,
and the intention to seek a 'voluntary reprofiling' of longer-term
debt, including debt owed to the IMF. The exact consequences
of the government's pronouncements are unclear, and some will
in any event be for the subsequent administration to determine.
Today's action reflects the rising expectation of losses to investors
as a consequence of these events. It is already clear that holders
of short-term debt will incur some losses as a result of delays
in repayments, and Moody's places little weight at present
on the suggestion that any restructuring of medium and long term debt
might be 'voluntary' in nature.
The decision to downgrade to Caa2 ratings reflects Moody's current
assessment of the losses that might be expected from any future restructuring,
of between 10% and 20% of amounts due.
However, at this early stage it is very unclear what the government
will wish, or be able, to achieve from the proposed 'reprofiling'.
In any event, it is likely that negotiations will spill over into
the next administration, the objectives of which are not yet known.
The decision to leave the ratings on review for further downgrade reflects
Moody's view that there is a strong upward bias to losses expected
from future negotiations. Losses are unlikely to be lower than
levels consistent with a Caa2 rating, and may be higher.
The review period, which may extend beyond the usual three month
horizon for reviews, will allow Moody's to assess the consequences
for investors of further steps by the current administration or by its
successor to restore the government's finances.
WHAT COULD CHANGE THE RATING - DOWN
Moody's could downgrade the rating if the review were to conclude that
losses to investors from the proposed restructurings of government debt
will not be consistent with a Caa2 rating. Such a conclusion would
most likely reflect the result of negotiations between investors and the
Argentine government, but it could also reflect a further worsening
of Argentina's fundamentals including growth and debt.
WHAT COULD LEAD TO CONFIRMATION OF THE RATING AT THE CURRENT LEVEL
Moody's would confirm the current rating if the terms for restructuring
of medium and long term debt limit investor net present value losses to
no more than 20%, which is the limit of Moody's expected
losses for a Caa2 rated issuer.
NATIONAL SCALE RATINGS
Moody's will shortly publish an update to its National Scale Rating (NSR)
map for Argentina to reflect the downgrade of the government's long-term
issuer rating. Moody's NSRs are ordinal rankings of creditworthiness
relative to other credits within a given country, which offer enhanced
credit differentiation among local credits. NSRs are generated
from Global Scale Ratings (GSRs) through correspondences, or maps,
specific to each country. However, unlike GSRs, Moody's
NSRs are not intended to rank credits across multiple countries.
Instead, they provide a measure of relative creditworthiness within
a single country. The full maps can be accessed through the "Index
of Current and Superseded Compendia of National Scale Rating Maps by Country".
As a result of the rating action on Argentina and the expected impact
on other ratings, the NSR mapping will be revised, from the
current modified map based on a Ba3 anchor point, to the standard
map based on a B1 anchor point.
GDP per capita (PPP basis, US$): 20,537 (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: -5.3% (2018 Actual)
(also known as External Balance)
External debt/GDP: 53.5% (2018 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 29 August 2019, 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 fiscal or financial strength,
including its debt profile, has materially decreased; the systemic
risk in which the issuer operates has materially increased; the issuer
has become increasingly susceptible to event risks.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in November 2018. 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 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.
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
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
