Moody's: Risk of default of Argentina's restructured local legislation foreign currency debt increases

Moody's Investors Service has today expanded the portion of Argentina's debt that is rated (P)Caa2. The (P)Caa2 rating reflects the higher risk of default for both Argentina's restructured foreign legislation debt (as before) and, additionally now, its restructured local legislation foreign currency obligations, as compared with the risk of default on other debt instruments issued by Argentina. Argentina's local currency debt and its non restructured foreign currency debt are rated Caa1. The debt that remains in default since Argentina's 2001 default is rated Ca.

Last July US court rulings froze payments on certain Argentine bonds leading the country to default. The courts ruled that Argentina could not service its restructured debt without concurrently paying litigating bondholders, which the country refuses to do. Holdout bondholders refused to participate in the 2005 and 2010 debt swaps meant to resolve Argentina's 2001 debt default, and have pursued legal remedies since then.

Originally the court rulings applied only to Argentina's restructured foreign legislation obligations but on March 12 US courts further ruled that certain local legislation obligations were subject to the same payment freeze. As a result, while the precise scope of the new ruling remains unclear, payments on Argentina's restructured local legislation foreign currency debt may also be caught by the payment freeze orders of US courts, particularly any such debt serviced by international financial institutions.