Argentina extended maturities and reduced interest payments on ARS42.6 trillion ($50.1 billion) of local debt this week but S&P Global said the debt swap amounted to a distressed exchange and was “tantamount to default.”
Bondholder participation in the exchange reached 77%, most of which were public entities. They exchanged notes coming due this year for new ones that will mature between 2025 and 2028, the Secretary of Finance said in a statement late Tuesday.
Most of the exchanged notes are denominated in Argentine pesos and two are linked to the US dollar. The deal extends the average maturity of the bonds to three years from 0.46 years previously and saved the sovereign ARS555 million in interest, it added.
Of the bondholders who accepted the terms, 17.5% were from the private sector and the rest were public entities, according to the statement.
The outcome of the swap will grant the government of Javier Milei a breather in short-term debt payments as it seeks to push through structural reforms to help rekindle economic growth, balance the budget and slash 276% annual inflation, the highest in the world.
The results widely deemed a success by market watchers, with financial analyst Christian Buteler saying on social platform X that it was a “good and expected result” even considering the high proportion of notes that were in the hands of the state.
However S&P said it considered the exchange “distressed, rather than opportunistic” and a reflection of the government’s “weak” market access.
The credit rating firm said it sees a likelihood of a conventional default “given the sovereign’s acute macroeconomic vulnerabilities and limited ability to extend maturity and place paper in the local market without relying on exchanges,” according to a statement issued on Wednesday.
NEGATIVE OUTLOOK
S&P cut the local rating to SD/SD from CCC-/C, though said it would likely return the rating to its previous level once the debt exchange is completed. It affirmed Argentina’s CCC-/C foreign currency rating, though with a negative outlook due to the country’s “severe economic imbalances and policy uncertainties as the government implements its difficult economic stabilization plan.”
By extending local debt maturities, the Milei administration is also seeking to reduce the need to print pesos to cover local debt payments, helping to ease the pressure of monetary expansion on inflation, stabilize the exchange rate and boost foreign reserves.
On Tuesday, Argentine Economy Minister Luis Caputo said that reducing the fiscal deficit will help achieve his top priority of cutting inflation — and fast. He called the strategy shock therapy.
“We are not inclined to think about a gradual monetary scenario of inflation like Peru in three years,” Caputo said. “People are not going to tolerate that.”