| NEW YORK
NEW YORK Nov 30 Standard & Poor's said on
Friday that unless Argentina and holdout bond investors reach a
payment agreement on defaulted debt from 2002 its B-minus credit
rating on the South American nation is at risk of a downgrade.
On Wednesday the U.S. 2nd Circuit Court of Appeals granted
an emergency stay on a lower court's order that Argentina
transfer into an escrow account for holdout investors a payment
of $1.33 billion by Dec. 15.
While that removed the threat of an imminent default and
therefore a downgrade of its credit rating, Argentina has vowed
it would never pay holdout investors.
"We believe that the chances of Argentina making that
deposit would have been low," S&P said in a research note late
on Friday, referring to the deposit that would guarantee payment
to the holdout investors if they ultimately triumph in the case.
S&P's belief is based upon Argentina not complying with U.S.
District Court Judge Thomas Griesa's orders to pay billions of
dollars in awards to holdout investors over the decade long
But the rating agency said the ruling gives Argentina more
time to either settle with the holdout investors or make
alternative arrangements to pay those bondholders who have
participated in past restructurings.
If Griesa's latest ruling to pay holdouts survives the
appeals process and Argentina still refuses to pay, U.S. courts
could eventually block debt payments to creditors who took part
in the restructurings out of consideration for investors who
rejected Argentina's terms at the time.
That would trigger a technical default on approximately $24
billion worth of debt issued in the 2005 and 2010 exchanges.
"If we see that debt payments on which the sovereign is
current are threatened, we could lower our ratings to the 'CCC'
category," S&P said.
"We could lower our rating on Argentina to 'SD' (selective
default) if it misses a payment on the exchange debt and the
default is not cured within five days, or if Argentina makes
payments at variance to the terms of its bond indentures," it
S&P's current rating outlook is negative. Moody's Investors
Service rating of B3 is equal to S&P's while Fitch slashed the
rating three notches to CC earlier this week. All three agencies
have a negative outlook on the credit.
The pending appeal, to be heard by the 2nd Circuit on Feb.
27 means Argentina can make its December payments to investors
who participated in the exchanges and not risk default.
S&P said if there is a change of heart on Argentina's part
and an amendment of its so-called "lock law" which prohibits the
government from making a new offer to holdouts, there could be a
positive impact on the rating.
"First, it could lessen the risk of interruption of debt
service from holdout creditors," S&P said, adding: "And second
it could constitute an additional step to facilitate Argentina's
return to international capital markets."