Author: AtlanticIS

Argentina, January 20, 2020 – The administration of President Alberto Fernandez launched and concluded an exchange on its peso-denominated short-term debt on Jan. 20, 2020. This followed the Dec. 19, 2019, unilateral extension (until August 2020) of U.S. dollar-denominated short-term paper held by private-sector market participants. We classify this peso-debt exchange as a distressed exchange, which constitutes a default under our criteria, and we are lowering our local currency sovereign credit ratings on Argentina to ‘SD/SD’ from ‘CCC-/C’. We are also affirming our long-term foreign currency sovereign credit rating at ‘CCC-‘, and the outlook remains negative. The negative outlook reflects prospects for a further restructuring of sovereign debt as the administration holds dialogues with bondholders, financial intermediaries, and official creditors on its policy priorities, economic strategy, and re-profiling plans.

Rating Action: On Jan. 21, 2020, S&P Global Ratings lowered its local currency sovereign credit ratings on Argentina to ‘SD/SD’ from ‘CCC-/C’ (our criteria do not distinguish between short term and long term when there is a default). We affirmed the foreign currency sovereign credit ratings at ‘CCC-/C’. The outlook on the long-term foreign currency sovereign credit rating remains negative. We also took the following rating actions:

• We lowered the long-term local currency-denominated issue ratings to ‘CC’ from ‘CCC-‘;
• We affirmed the long-term foreign currency issue ratings at ‘CCC-‘;
• We affirmed our ‘B-‘ transfer and convertibility assessment on Argentina; and
• We lowered our national scale rating on Argentina to ‘SD’ from ‘raCCC-‘.

Outlook: The negative outlook on the long-term foreign currency rating reflects the downside risks to timely and full payment of debt over the short term amid stressed economic and financial market dynamics. The sovereign’s access to liquidity is likely to remain constrained as the Fernandez Administration outlines its economic policies while engaging in dialogue with bondholders, bankers, and the International Monetary Fund. We could lower the foreign currency ratings if the government finalizes terms with bondholders for a potential debt restructuring that is characterized as a distressed debt exchange based on our methodology. Such a restructuring could entail an extension of maturities, which will not be compensated by the issuer, or a reduction in the face value of debt. Additionally, we could lower the ratings if economic and financial stresses further threaten timely debt service or the sovereign misses a debt payment. We could raise the ratings following implementation of a debt restructuring if policy signals and execution start to successfully turn around or stabilize private-sector confidence, market turbulence subsides, and the government regains access to market financing.

S&P Global Ratings, January 21, 2020

Spain, January 7, 2020 – Centro de Investigaciones Sociológicas (Center for Sociological Research, or CIS) reported that Spain’s consumer confidence index had plunged to 77.7 in December 2019, 13 points below the levels in December 2018 and the lowest level since 2013. The significant decline in consumer confidence, consistent with other negative data reported in recent days, is credit negative for asset-backed securitisations (ABS) collateralised by Spanish consumer loans. Consumer confidence data provide a forward indicator that asset risks will increase and consequently weaken the performance of securitised loans. Falling consumer confidence somewhat correlates to weaker future performance in consumer credit, as the exhibit shows. Indeed, consumer confidence plunged in mid-2007 before Spanish consumer nonperforming loan (NPL) ratios surged.

The sharp decrease in consumer confidence during the second half of 2019 reflects an increasing concern among Spanish consumers about the national economy and employment. We expect that borrowers will face more challenges repaying their consumer loans because of a gradual moderation in the growth performance of the Spanish economy: we expect GDP growth of 1.8% for 2020 compared to 3% growth in 2016-17. The decline in consumer confidence is consistent with other negative data reported in recent days, including a 4.8% drop in 2019 car registrations, according to data from Spain’s associations of auto manufactures (Anfac), dealers (Faconauto) and vendors (Ganvam). The drop is the first in Spain since 2012.
Adding to these challenges is that consumer lending continues rising despite indications of economic deceleration. The overall stock of household debt in 2019 was relatively flat compared with 2018, but there were different trends when comparing secured lending and unsecured lending. According to the Bank of Spain, the stock of consumer loans in 2019 increased 4% from a year earlier (November 2019 data), doubling GDP growth, while the stock of mortgage debt fell 1% over the same period, suggesting the mortgage market is adapting to a decelerating economy.
The combination of the decline in consumer confidence and an increase in unsecured debt will continue to put pressure on Spanish ABS. However, the effect will not be the same for all types of consumer loans. We expect that auto-loan ABS will perform better owing to these borrowers’ higher quality. But consumer loans with no specific purpose are often used by borrowers facing financial troubles in household economies, and they will likely be most negatively affected. Still, the performance of Spanish consumer-loan ABS is better than the national average of consumer NPL given the stronger eligibility criteria applied to Spanish securitisations.

Credit Outlook: 13 January 2020. Pg. 19
Moodys