Moody's Cuts Rating Restructured Argentine Debt
Ratings firm Moody's on Friday downgraded Argentina's foreign law bonds, citing an increased risk of default linked to the outcome of a U.S. lawsuit filed by hedge funds.
The bonds, the part of the country's debt that was restructured after Argentina's 2001 default, were cut from "B3" to "Caa1," seven notches below investment grade.
Moody's said that the rest of Argentine debt maintained its B3 rating, with a negative outlook.
After Argentina defaulted on some $100 billion in debt, it restructured the debt in 2005 and 2010, with 93 percent of creditors accepting the new discounted formula.
But two U.S. hedge funds holding defaulted bonds declined to participate and sued Argentina in New York to recover 100 percent of the bonds' value, $1.3 billion.
The U.S. court's ruling late last year that the country must make good on 100 percent of the face value of the bonds held by two hedge funds threw the entire restructuring deal into question.
The court's ruling putting the hedge funds' bonds on an equal footing with the foreign law bonds.
As such, Buenos Aires' threat to not pay the hedge funds' claims, Moody's said, could lead to the country falling in default again on all of the debt.
"The downgrade reflects the increased default risk of these bonds deriving from ongoing legal proceedings in U.S. courts," Moody's said.
After Argentina suggested in an appeals court hearing that it would propose an alternative payment formula for the hedge funds' holdings, the court gave it until March 29 to lay out those terms.
Source: Agence France Presse
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