Fitch cuts Argentina rating, says second default possible

Fitch cuts Argentina rating, says second default possible

Fitch cuts Argentina rating, says second default possible

Angry protesters are seen during a clash with police at a demonstration against the Argentine government in Buenos Aires in this Dec 11, 2001 photo. The country is facing a debt pile from the 2011 crisis.

International credit rating agency Fitch has chopped Argentina’s rating by five notches to CC, deep in junk territory, saying it expects Buenos Aires to default after a US court ordered it to repay old debt.

The downgrade on nov. 27 “reflects Fitch’s view that a default by Argentina is probable,” the agency said.

The downgrade came after a New York judge ruled on Nov. 21 that Argentina must repay holders of some $1.3 billion worth of bonds the country already defaulted on 11 years ago.

The judge said that Argentina would have to repay the bondholders by Dec. 15, concurrent with the country’s obligation to pay out another $3 billion on previously restructured debt, Agence France-Presse reported yesterday.

Fitch said it did not expect Buenos Aires, already struggling with deteriorating state finances, would make the payments.

Argentina has refused to pay the debt, saying the bonds are held by predatory hedge funds which did not take part in an earlier bond swap with investors to resolve the 2001 sovereign default.

‘Not legitimate’

After the Nov. 21 ruling, Economy Minister Hernan Lorenzino said at a news conference said the country would appeal the decision. “We do not think it is right or legitimate to pay vulture funds,” the agency quoted him as saying.

Fitch said it will monitor how the case evolves and the Argentine government’s response in the coming weeks, but said a missed payment would constitute a default.

 Fitch added that the downgrade reflects the “sustained deterioration” of Argentina’s finances.

 “The uncertainty related to the impact of the US court ruling is likely to further damage confidence and intensify political and social tensions in the country and undermine growth prospects,” it said.

“Argentina’s economy has decelerated sharply in 2012 owing to the increased state intervention. This has been highlighted by the progressive tightening of capital controls, the nationalization of YPF and the inability of certain provinces to access USD to repay their dollar-denominated debt under local law.”

Meanwhile, the fight coming to a head in U.S. courts over Argentine government debt has attracted some of the biggest names in the U.S. legal business, Reuters reported.

The latest big gun to enter the fray is celebrated attorney David Boies, whose appearance is the latest sign of escalating stakes in the case. Boies, a partner at Boies, Schiller & Flexner, represents holders of Argentine bonds who agreed to two rounds of restructurings in which Argentina issued new debt at a steep discount.

His appearance also sets up a potential rematch between Boies and another top-flight attorney, Theodore Olson, who is representing an opposing group of investors. Olson represented former President George W. Bush at the Supreme Court in a case that decided the U.S. presidential election in 2000. Boies represented Democratic candidate Al Gore, who lost the election.

Europe sets mind on ratings agencies

BRUSSELS – Agence France-Presse

The European Commission, European Parliament and European Council have reached compromise on new rules meant to govern credit ratings agencies, EU Internal Market Commissioner Michel Barnier said on Nov. 27. “I welcome the important agreement reached today on additional rules for credit rating agencies which aim to reduce the over-reliance on ratings, eradicate conflicts of interest, and establish a civil liability regime,” Barnier said in statement.

These agencies “will have to be more transparent when rating sovereign states,” Barnier added, as well as “respect timing rules on sovereign ratings and justify the timing of publication of unsolicited ratings of sovereign debt.” The commission hopes the new rules will be adopted by the European Parliament and the 27 leaders making up the European Council by the end of the year.