Argentina’s credit rating was cut two levels by Standard & Poor’s after the U.S. Supreme Court yesterday declined to hear the country’s appeal of a ruling that may prompt a default.
S&P lowered the country’s rating to CCC-, nine levels below investment grade and the lowest rating for any nation that’s currently assessed by the company, according to an e-mailed statement today. S&P gave the rating a negative outlook reflecting the likelihood of a further downgrade on payment interruptions or a distressed debt exchange.
The U.S.’s highest court rejected Argentina’s request to appeal a ruling that prevents the country from honoring its restructured debt without also paying holders of defaulted bonds from 2001 in full. Argentina has a $900 million coupon payment on restructured bonds due June 30 which will be blocked unless holdouts from the nation’s two debt restructurings, including Elliott Management Corp., are compensated.
“We would consider interruptions to debt that is currently being serviced as a new default,” said S&P. “A default or a distressed debt exchange pertaining to currently serviced debt appears to be inevitable within six months, in our view, absent unanticipated significantly favorable changes in Argentina’s circumstances.”
President Cristina Fernandez de Kirchner said Argentina won’t default on its restructured debt, while calling the court ruling to pay holdouts $1.3 billion “extortion.” Complying with the orders will prompt total claims on defaulted bonds to grow to $15 billion, an amount that’s “impossible” to pay with reserves hovering near an eight-year low, she said.
Argentine bonds plunged for a second day today after dropping 9.3 percent on average yesterday, according to JPMorgan Chase & Co. The extra yield investors demand to own Argentine bonds over Treasuries widened 0.34 percentage point to 8.84 percentage points at 3:24 p.m. in New York. That’s the highest borrowing cost in emerging markets after Venezuela.
S&P last downgraded Argentina in September, after the nation lost its appeal of the ruling in a U.S. Appeals Court.