Argentine Default 'Probable,' Fitch Says

Nov 28 2012 | 1:03am ET

Argentina has vowed to continue its fight against Elliott Associates and other holdouts from its 2002 debt default, but Fitch Ratings doesn't think it will win.

The ratings agency slashed the country's sovereign debt rating yesterday, determining that "a default by Argentina is probable." Argentina's international law bonds are now rated CC. Fitch also cut its Argentine law bonds to B-minus.

Prior to the downgrade, both sets of bonds were rated B, four steps below investment grade.

Argentina is in danger of a technical default on exchange bonds it issued to creditors that accepted its debt restructuring—and a serious haircut—in 2005 and 2010. A federal judge in New York has ordered the country to pay $1.33 billion into an escrow account for the holdouts, including Elliott affiliate NML Capital and Aurelius Capital Management, before it can make a $3 billion coupon payment on the exchange bonds. Argentina has vowed it will not pay the holdouts, which it calls vultures, but has also said that it will not default again.

On Monday, Argentina and the exchange bondholders appealed the lower-court ruling. Argentina has said it will take matters all the way to the U.S. Supreme Court if it must, but it may be too late to avoid a default if it gets that far.

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