Saturday, September 14, 2013

Argentina: Standard & Poor's Lowers Credit Rating of Four Banks to CCC+ from B-

According to The Latin American Tribune, Standard and Poor’s Ratings Services lowered its global scale issuer credit ratings on Banco Hipotecario SA, Banco Patagonia SA, Banco de Galicia y Buenos Aires SA and Banco de la Provincia de Buenos Aires SA to CCC+ from B-.

In addition, Standard and Poor's removed the ratings on Banco de la Provincia de Buenos Aires from CreditWatch with negative implications, where it placed them on July 4, 2013. The outlook on the ratings is negative.

The downgrade of Argentina is based on increased risks to debt service stemming from a lawsuit over the debt the government still maintains in default. The lawsuit could result in the interruption of payments on bonds currently under New York jurisdiction or it could prompt Argentina to undertake a debt exchange that we could view as distressed. 

Under Standard and Poor's criteria, those outcomes would lead the agency to lower its rating on Argentina to ‘SD’ for selective default. Although neither outcome is certain, Standard and Poor's believes that there is at least a one-in-three chance of either occurring within the coming 12 months.

Standard and Poor's rarely rates financial institutions above the foreign currency ratings on the countries where they operate because it considers it unlikely that these institutions would remain unaffected by developments in their domestic economy. 

Also, all the financial institutions operating in Argentina could face indirect effects of a sovereign downgrade. This is because the agency believes a sovereign downgrade is normally associated with, or could lead to, a weaker operating environment for financial institutions, which would very likely affect their creditworthiness. 

COMMENT: These trends could harm the credit fundamentals of these four banks. S&P will continue to monitor their financial condition closely.

The negative outlook on the banks reflects the outlook on sovereign ratings. S&P could further lower its rating on Argentina if it perceives that legal risks to its debt servicing have increased or have become more imminent. 

Among other developments, a decision by the US Supreme Court not to hear the appeal or the implementation of an exchange proposal that makes alternative payment arrangements that, in S&P view, materially alter the terms of its bond indentures to the detriment of creditors could prompt a downgrade. 

On the other hand, if the US Supreme Court agreed to hear the case or if the agency perceived the legal risks had moderated, the ratings could stabilize. A revision the sovereign outlook to stable will trigger a similar rating action on the four Argentine banks.