Argentina: Fitch Lowers Argentina to 'DDD' Default Rating.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 3, 2001

Fitch, the international rating agency, said today that following the completion on Friday, Nov. 30 of the first stage of the exchange of public debt, Argentina's issuer rating has been lowered to 'DDD' from `C' indicating that in Fitch's opinion a default event has occurred.

Fitch will lift Argentina's issuer rating from 'DDD' once thirty days have expired and if a further default event has not occurred during that period.

Fitch likewise has lowered the rating on debt securities that have been subject to the exchange to 'DD' from `C' indicating default and an expected recovery rate between 50% and 90%. While a portion of these securities are held by international investors and may have not been tendered as part of last week's exchange, it remains the case that some holders of these securities have been subject to a distressed debt exchange and hence a default according to Fitch's criteria. On the expiration of thirty days and if a default event has not occurred during that period, a non-default rating will be assigned to the outstanding issue.

Fitch will assign a `CC' rating to the sovereign obligations created by the exchange. The discount and par bonds maturing in 2023 also remain at this rating level, as these bonds have been excluded from the debt exchange and have collateral against which several months of interest payments (and principal at maturity) are covered. Letes, short-term federal government securities, which were also excluded from the exchange, will remain at a short-term rating of `C'.

In light of the World Bank's status as a preferred creditor and the Argentine government's explicitly excluding bonds with the World Bank guarantee from its debt exchange, Fitch will maintain its 'B+' rating on Argentina's $250 million series E due Oct. 15, 2003 and $250 million series F Due Oct. 15, 2004 zero coupon notes with a Rolling World Bank Guarantee. The $250 million series D due Oct. 15, 2002 benefits directly from the World Bank Guarantee and is rated 'AAA'.

In light of the government decree announced over the weekend imposing controls on bank withdrawals and the external transfer of funds, Fitch will be lowering its country ceiling, the upper limit on most corporate bond ratings, to `CC' from `CCC+'. According to the decree, usage of local bank deposits for private sector external debt service will henceforth require authorization from Argentina's central bank.

Furthermore, Fitch has assigned a Rating Watch Negative status to those sovereign debt obligations that have not experienced an event of default (e.g. the pars and discounts, the `World Bank' bond, the Letes, and the new obligations resulting from the recent swap). This is a result of the economic uncertainty created by the new measures to protect bank deposits and reserves, as well as recent weakness in tax revenue performance and doubts about future multilateral disbursements. The Rating Watch Negative status will remain in place until such time when greater clarity about these developments emerges. Fitch will closely monitor the likely restructuring of the sizable Argentine government bond holdings of non-resident investors and the future viability of the currency regime (underscored by Convertibility and the link to the U.S. dollar). The sizable participation in last week's distressed exchange may enhance the government's negotiating position vis-a-vis international investors.