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NEW YORK, March 15 (Reuters) - Moody's Investors Service on Friday cut the credit rating on Argentine sovereign debt governed by foreign law to Caa1, citing the increased risk of a default on these issues due to an ongoing U.S. legal case.
The case involves investors who declined to participate in the restructuring of Argentine sovereign debt in 2005 and 2010 after the country defaulted in 2002. These investors are known as "holdouts".
Moody's said the ratings move was made to differentiate these restructured bonds governed by foreign law, from the rest of Argentina's sovereign debt. It affirmed Argentina's B3 issuer rating, which applies to bonds issued under local law.
The drawn out legal battle between Argentina and the holdouts has raised fears of another default and is compounding investor concerns about unpredictable policy-making and sluggish growth in Latin America's third largest economy.
A U.S. appeals court is deciding whether to let stand a lower court's order on how Argentina should pay some $1.3 billion to the holdout investors. The ruling stipulates that Argentina is to repay these holdout investors at the same time it makes regular coupon payments to bondholders who decided to participate in the two restructurings.
In addition Moody's affirmed the Ca rating on the $6.3 billion of untendered debt that remains in default.
The outlook on all these ratings is negative, Moody's said in its statement.