Research Update: Argentina Local Currency Sovereign Rating Lowered To 'SD' After Debt Exchanges; 'CCC' Foreign Currency Rating Affirmed

After two similar exchanges this year, Argentina has undertaken another peso debt exchange offer for up to US$6.5 billion of a debt instrument that matures March 2025 in return for a reopened fixed-rate instrument maturing November 2025--bringing its total exchanged local currency debt to US$78 billion since March 2024. Continued recourse to such debt operations reflects the sovereign's limited ability to extend maturities and place paper in the local market, and we therefore consider this transaction distressed and tantamount to default. As a result, we lowered our long- and short-term local currency sovereign credit ratings on Argentina to 'SD/SD' (selective default) from 'CCC/C'. We affirmed our 'CCC/C' foreign currency ratings. The stable outlook on the long-term foreign currency rating balances

...Key rating factors Score Explanation Institutional assessment 6 History of poor economic outcomes that have hurt public finances, economic performance, and debt service. Persistent polarized political landscape and history of pronounced swings in policy with changes in administrations. Perceived weaknesses in rule of law; the judiciary is not considered independent of influence from governing party. Debt payment culture that is weak following series of debt restructurings in recent decades. Economic assessment 5 Based on GDP per capita ($) as per Selected Indicators. Weighted average real GDP per capita trend growth over a 10-year period of 0.6%, which is below sovereigns' in the same GDP category. External assessment 6 Based on narrow net external debt and gross external financing needs as per Selected Indicators. Debt issuance constraints in global capital markets following rescheduling. Fiscal assessment: flexibility and performance 6 Based on the change in net general government debt...

Research Update