Fitch Affirms Argentina's Foreign Currency IDR at 'RD'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Argentina's Long-term foreign currency IDR at 'RD'. In addition, Fitch has affirmed Argentina's Long-term local currency IDR and Country Ceiling at 'CCC' and the Short-Term Foreign-Currency IDR at 'RD'.

KEY RATING DRIVERS

Fitch's affirmation of the foreign currency IDR at 'RD' reflects Argentina's inability to cure the default on external market debt. The legal process related to the dispute between Argentina and certain holdout creditors that did not participate in the 2005 and 2010 exchange offers culminated in a prohibition that stipulates that Argentina could not make payments to exchanged bond holders unless payments were also made to the plaintiffs in the case.

The government has not reached an agreement with holdout creditors that would allow Argentina to service its restructured debt. Fitch does not expect a resolution in the near term given the electoral cycle. There is considerable uncertainty regarding the timing and type of resolution with the holdouts by the incoming administration.

Fitch's affirmation of the local currency IDR at 'CCC' reflects Argentina's weak and volatile macroeconomic performance, rising fiscal financing needs and limited sources of funding.

Funding needs have increased due to widening fiscal deficit, and external financing sources remain limited. Fitch estimates that the national administration's deficit (without taking into account social security (ANSES) or BCRA transfers) could rise to 7.3% of GDP in 2015, driven largely by higher spending.

Although the fact that public sector entities hold 61% of government debt mitigates immediate refinancing risks, continued monetization of fiscal deficits would feed into greater macroeconomic instability. Moreover, access to fresh sources of FX remains curtailed due to the inability of the sovereign to directly tap external markets.

External vulnerability is significant given high commodity dependence, weak external liquidity (69% in 2015), limited material sources of external financing and protracted tensions in the FX market that fuel recurrent episodes of capital flight. While headline international reserves have increased since entering default in July 2014, partly explained by use of a currency swap facility with China, Fitch expects available external liquidity to remain under pressure due to rising FX interventions and the likely use of international reserves to service Boden 2015 amortization.

RATING SENSITIVITIES

Note that the Foreign and Local Currency IDRs do not have Rating Outlooks.

The resumption of timely debt service on defaulted bonds would lead to the upgrade of the foreign currency IDR. At such time, Fitch will review Argentina's ratings and make an assessment based on the sovereign's capacity to service debt, its economic fundamentals, and the remaining litigation risks.

KEY ASSUMPTIONS

Fitch expects China to manage a slowdown in its economy, growing by 6.8% in 2015 and 6.5% in 2016, thus providing limited upside for commodity prices.

Fitch expects Brazil (an important trading partner for Argentina) to remain in recession in 2015 and downside risks have increased for 2016 growth outlook.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Country Ceilings (pub. 20 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869287

Sovereign Rating Criteria (pub. 12 Aug 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754428

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990868

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990868

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150916006288/en/

Fitch Ratings
Primary Analyst
Erich Arispe
Director
+1-212-908-9165
Fitch Ratings Ltd.
33 Whitehall Street
New York 10004
or
Secondary Analyst
Shelly Shetty
Senior Director
+1-212-908-0324
or
Committee Chairperson
Charles Seville
Senior Director
+1-212-908-0277
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
[email protected]

Source: Fitch Ratings

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