Adding Insult To Injury, Argentina Is Downgraded By S&P: What Happens Next

Tyler Durden's picture

As reported yesterday, The SCOTUS dealt a major blow to Argentina hopes it would avoid making payments on its "holdout" bonds when it enforced a lower-court ruling that said Argentina can't make payments on its restructured debt unless it also pays holdout hedge funds headed by Elliott Management, best known for briefly seizing an Argentina ship in late 2012. The immediate result was a major rout in the country's sovereign bonds, which also sent Argentina CDS soaring.

And while in a nationally televised appearance Argentina's president Kirchner last night tried to restore some stability to the situation, saying the country wouldn't default on its debt, she once again towed the old party line describing holdout demands as “extortion” and dismissing yesterday’s US supreme court ruling in their favour as “absurd”. In short: she repeated she wouldn't pay the "vulture funds."

"What I cannot do as president is submit the country to such extortion,” she said, repeatedly adding that Argentina would continue making repayments to those lenders who have agreed renegotiated settlements.

She added that, if she were to comply, the lenders who had agreed a haircut “will find a judge who will tell them that they, too, have the same rights.” That would be an outcome that would crash the Argentinian economy.

Sadly for Argentina, this would hardly be the end of it, and about an hour ago, Standard & Poor added insult to injury and lowered its long-term foreign currency rating on Argentina to CCC- from CCC+ citing a "higher risk of default on the country's foreign currency debt."

"The Argentine government has limited capacity to pay the plaintiff creditors while servicing its current debt," S&P said. The rating agency affirmed its short-term foreign currency rating at "C", saying the disruptions on payments due to the adverse court rulings were not likely to affect the government's ability to service debt issued in local currency.

As a result, yesterday's drop in bonds has continued, if at a more moderate pace, and the country's USD bond due 2024 have continued to sink in intraday trading.

One entity that is suddenly very nervous at this most recent development is none other than the de-facto perpetuator of the status quo, the IMF, which is suddenly concerned what message an Aargentina default would send to the rest of the insolvent world. As BBC reported, the IMF said it was concerned about "broader systemic implications".

Some analysts believe it is possible that the Supreme Court's ruling could encourage investors to hold out in other restructurings of sovereign debt.


"The Fund is considering very carefully this decision and, as we have said before, we are concerned about possible broader systemic implications," the IMF said. The Fund is usually closely involved in the financial restructuring of countries in trouble.

Of course, if this was not Argentina but some other insolvent country, preferably part of the artificial monetary construct known as the EU, the IMF would promptly bail the country out. Although considering the bad blood between the near broke nation and the fund, this is hardly on the Agenda.

So what is next for the cash-strapped Latin American country for which the road ahead is suddenly quite "challenging" and default appears increasing like the only way out?

For the answer we go to Citi's Jeffrey Williams who has laid out the five most likely developments.

The Supreme Court of the U.S. denied Argentina’s appeal on the pari-passu case and ruled against Argentina’s position on the Discovery case. We view this as a major blow to the over-sized expectations that the market had come to price in, with most participants expecting a call for the views of the Solicitor General. However, it need not be an altogether negative resolution in the medium term. Indeed, it may end up creating conditions for a negotiation and resolution of the Hold-Out issue at large. The spectrum of possibilities remains quite large

Likely developments:

1) The stay: Argentina is called to the Court to lay down its plans for future legal actions. If Argentina intends to request a re-hearing from the Supreme Court, the Court may want to assess the likelihood of success of that action before deciding on the stay. Furthermore, since the payment of the next coupon is on June 30th, the Court may decide to grant the intermediaries a two week advanced notice and that may effectively lift the stay after the June 30th deadline. Argentina has until July 11 to request a re-hearing of the petition.

2) An umbrella to negotiate: The Court may provide an environment to reach a good faith negotiation between Argentina and the Holdouts. This is likely to be difficult process as it will involve many different type of claim holders, not just the pari-passu case. Any such window of time is likely to be, in our opinion, relatively brief. We imagine a window of time of three months, before the September 30 coupon payments.

3) Argentina plays hardball: Cristina Kirchner (CFK) will take the stage tonight, June 16th, at 8:30pm 00pm EST. What she tells the nation is difficult to assess at this point. One possibility is that she argues that the US Courts have not understood the implications of their decisions. That Argentina enjoys the support of a long list of governments, including the US, France, Mexico, Brazil and many other governments that gave her support over the weekend. Therefore, facing a decision by Courts that are insensitive to this reality, Argentina may have no option but to comply with one of the options opened by the Court: paying nothing to any of the holders of debt. This In the government’s interpretation, this would not be an “economic default”, as Argentina has the resources and will to pay. It is but a “technical default” forced by a legal interpretation.

4) If Argentina plays hardball, then the country may or may not start negotiations in good faith with Holdouts. In one scenario, the country looks for ways to continue servicing the debt owned by exchange bondholders. This scenario was contemplated in the supposedly leaked memo that was discussed in the district court two weeks ago. Another scenario would have Argentina trying to negotiate with all holdouts to resolve the issues as comprehensively as possible.

5) A fifth scenario is that Argentina accepts the Court ruling and decides to pay holdouts the current pari-passu case. This is an unlikely circumstance, in our opinion, as Argentina has repeatedly argued that there is a grave danger that there will be a long list of claimants that will quickly litigate to receive similar treatment. Argentina argued in its Supreme Court filing that these payments could amount up to $15bn. (although we do calculate a similar maximum amount if we include judgment debt as well as debt that has not yet been presented to courts, but none of this debt may be eligible for pari passu treatment. We do not believe a settlement would necessarily represent a large drain on reserves if most of the  payment is in the form of bonds as in other recent settlements.

The road ahead remains uncertain and scenarios become increasingly challenging for Argentina. The next statements out of the country’s maximum authorities will be crucial to shed light over the course of affairs. Having said that, we think that the most likely scenarios are (3) and (4).

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Say What Again's picture

I thought they ranked in the top 3 for the world cup

NidStyles's picture

All of this nonsense over pieces of paper...

NidStyles's picture

Nah, I only want real wealth, you know like those Zimbabwe trillion dollar bills. If I have enough of those I could live like the Rothschilds. 

CrashisOptimistic's picture

Ecuador now has oil and is pumping it.

BlindMonkey's picture

Maybe those fuckers shouldn't have relied on just the prospectus that was given to them by Argentina.

kurt's picture

Thank you School of the Americas 

For another agonizing dry hump

How's Venzuela coming?

NOTaREALmerican's picture

Default,  call the IMF,  get new loans.     Surely they've got some assets the IMF would like to get their hands on in exchange for some new loans.

BlindMonkey's picture

Default, dissolve the central bank, have the government print/mint MONEY like all .gov should and repudiate the debt.  That worked (repudiation anyway) for Russia and Iceland.  This should be the model of how a SOVERIGN nation deals with creditors.


For the creditors, they should understand that SOVERIGN nation lending is unsecured and at risk at all times.

ObamaDepression's picture

Funny how you can't screw international investors the way you can your own sheeple citizens.

Da Yooper's picture

I wont cry for you




ParkAveFlasher's picture

"Kirchner playing hardball" ... does that mean she takes her makeup off?  Because that would make me fold.

SDRII's picture

Will that make it a clean sweep of BRICS...A. In other news Latvia upgraded and estonia put on postive watch pending no more leaks




Rainman's picture

Bankrupt sovereign debt repudiation is such unpleasant bizness ... add Argentina to the hate amurika club, please.


orangegeek's picture

another socialist experiment down the fucking toilet


oh.......big surprise!!

kowalli's picture

another country broken by americans...i hope they still survive US occupation

LawsofPhysics's picture

our bonds are better than your bonds because we say so...

"Full faith and credit"

tick tock motherfuckers...

Make_Mine_A_Double's picture

On the bright side they still have some of the hottest pussy in the Western Hemisphere.

Inthemix96's picture

Hang the IMF my Argentinian brethren.

Living on the backs of your collective backs is no life for you my friends.

Lets string these cunts up.

Say no to odious debt, its not, and never was yours.


LawsofPhysics's picture

This is the real issue, usury and FRAUDULENT DEBT.

To paraphrase my favorite comedy troop; "printing money and handing it out to your friends is no basis for a sound monetary system".


Let me be clear;

roll the motherfucking guillotines, nothing changes otherwise.

(metaphorically the "guillotines" will roll whether we like it or not as that which cannot be sustained, won't be, regardless of what anybody "thinks" or "believes")

Confundido's picture

This may have unforeseen consequences for the USD regime, if the cards are properly played, because freedom is another word for nothing left to lose. Unfortunately, they will not play it well. However, ARG is the land where anything, absolutely anything, is possible. If the Americans were smart, they would leave the argies something they can lose...

MFL8240's picture

This will be the only correct call they will make because it has already collapsed!

Cow's picture

Paging Kevyn Orr

madcows's picture

Don't worry Argentina.  I downgraded america and the S&P to Double-D-Minus.


american citizen.

kowalli's picture

Nuland will be proud of you

Milestones's picture

This is about to really get comical when 90% of the world;s bonds hit the wall to join Argentina. l'll trade you Marvin Gardens for your

Utilities; sort  a wheeling and dealing near the tetherball pole. My, my, my.                Milestones

TheReplacement's picture

I'd take that deal.  If this whole thing gets as bad as it smells then people aren't going to be paying for utilities but you can eat from a garden.

Milestones's picture

This is about to really get comical when 90% of the world;s bonds hit the wall to join Argentina. l'll trade you Marvin Gardens for your

Utilities; sort  a wheeling and dealing near the tetherball pole. My, my, my.                Milestones

yogibear's picture

Looks like Eric Holder stopped any downgrades of the US.


AustrianJim's picture

Why does Argentina have any S&P rating at all?

SAT 800's picture

Because zero is not part of the rational number series.

SAT 800's picture

America ! Eceptionalism ! We make Monopoly Money for the World ! Join in and play ! It's family friendly ! What could go wrong ?

PontifexMaximus's picture

What does Kyle Bass say about it?

Gringo Viejo's picture

What next? Harvesting Organs.
Coming soon to a Country near you.

AurorusBorealus's picture

Just bought dinner here in Argentina at the local carniceria (butcher shop).  I can still buy a full cut of prime steak for 18 pesos... that´s $1.80... along with all the fixings for a salad for 8 pesos (about $.80).  So... while food prices soar in China, the U.S., and elsewhere, Argentina´s enormous agricultural bounty and surplus make the future here quite bright, in my estimation compared with much of the rest of the world.  The cause of social disorder has and allows will be lack of food and food inflation.  On this scale, I find Argentina to be much more "stable" than many other countries who are experiencing run-away food price inflation... cough... cough... U.S. China.  I doubt that you will be able to explain this to a banking executive who thinks that fine beef, good wine, and fresh vegetables are his birthright and available to everyone on demand. 

JonNadler's picture

18 pesos por un corte? un corte chico sin duda? No se preocupen che, mandale un regalito a Chuch Schummer y se arregla todo. Argentina AAAAAA

AurorusBorealus's picture

No estoy en Buenos Aires. Un corte alla es mas caro.  Estoy en centro del pais, rodeado de vacas: vacas en las calles, vacas en el rio, vacas en camiones, vacas en todos lados.

CrashisOptimistic's picture

Argentina is in steep oil decline.

Nothing else matters.  You can't get that steak to the table, it doesn't matter.

AurorusBorealus's picture

Get it to my table?  As I explain below in Spanish, there are cows in the street, cows in the river, cows everywhere.  It would walk into my kitchen if I left the door open.

TheReplacement's picture

Apparently you don't follow the news.  It seems various terrorist groups have been inflitrating Argentina and will some day have to be dealt with.  Oh, thanks for the agri-biz while we're there.

You cannot escape this.

matrix reinvented's picture

Keep your economy as local as possible Argentina, and luckily you have a wide range of raw resources/fertile lands to help you achieve this too. You just cannot trust outsiders who've been milking you for 90 years or so. Nationalizing agriculture and using the latest scientific farming methods to get the best yields (without GM tech) so the people are fed nutritionally well is very important when many globalist enemies are knocking on your door.  

TheReplacement's picture

That is a recipe for maximum population.  What do you do with maximum population when you have a bad growing season (drought, diseases...)?

You starve.  Socialism never works.  Ever.  It only ensures greater suffering for more people.  Write that down so you don't forget that the next time your college prof is busting a socialist nutty.

matrix reinvented's picture

Keep your economy as local as possible Argentina, and luckily you have a wide range of raw resources/fertile lands to help you achieve this too. You just cannot trust outsiders who've been milking you for 90 years or so. Nationalizing agriculture and using the latest scientific farming methods to get the best yields (without GM tech) so the people are fed nutritionally well is very important when many globalist enemies are knocking on your door.  

RhoneGSM's picture

Easy as pie: exchange bonds for land. Wait 5 years and expropriate the land. Tell them come and take it if they can.

honestann's picture

#####  DEFAULT  #####

Then never borrow again.

That's right.  Learn to operate with a balanced budget.  Or better yet, get honest and formally dissolve that fictitious entity known as "Argentina government".  Oh, and for all "regular folks" in Argentina: abandon fiat paper and computer-bit currency and switch to gold and silver coin money.

goldhedge's picture

Invade the Falklands (Malvinas)



AdvancingTime's picture

It is amazing how few people know or care about this development. The older debt gets and the longer it goes unpaid the less relevant it becomes. A great deal of our economic system is about debt. It is important to remember not all debt is created equal. A mirage is a naturally occurring optical phenomenon in which light rays are bent to produce a displaced image of distant objects. Joining the idea of a mirage and contagion with the reality of collapsing debt forms an interesting subject.

It is important to remember all debts and obligations do not come due at the same time. Also, it must be noted when a bill is not paid or defaults it often starts a long and drawn out legal battle, this collection process that may extend years without harsh consequences. This my friends is the reality of modern life in America and much of the world. More on this subject in the article below.