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BUENOS AIRES – Standard Poor’s Ratings Services lowered its global scale foreign currency ratings on Banco Hipotecario S.A., Banco Patagonia S.A., Banco de Galicia y Buenos Aires S.A., and Banco de la Provincia de Buenos Aires S.A. to ‘CCC-’ from ‘CCC+’.

The outlook on these ratings is negative and reflects the outlook on the sovereign.

At the same time, SP is placing the ‘CCC+’ global scale local currency ratings on these banks on CreditWatch with negative implications.

The downgrade of these banks follows a similar action on the Republic of Argentina (foreign currency: CCC-/Negative/C; local currency: CCC+/Negative/C) and the revision of the agency’s TC assessment on it to ‘CCC-’ from ‘CCC+’. SP believes that these banks won’t overcome a sovereign default stress scenario on its foreign currency.

The CreditWatch listing on the local currency ratings on the banks reflects that SP will be assessing the impact of more adverse economic and operating conditions (including the change in variables, such as interest rates, inflation, exchange rate, and regulation) on the banks’ creditworthiness.

The downgrade of Argentina reflects the heightened risk of default on its foreign currency debt following a recent decision by the U.S. Supreme Court not to hear the Argentine government’s appeal against a previous decision by the U.S. Second Circuit Court of Appeals in favor of plaintiffs against the sovereign. The plaintiffs are bondholders who did not participate in the 2005 and 2010 debt exchanges and who have sought to block payments to bondholders who did participate until they obtain full payment on their claims.

The TC revision reflects the risk that the government could further tighten its exchange control regime to the extent that it impairs the private-sector’s ability to service its foreign currency debt.

The affirmation of the ‘CCC+’ sovereign local currency ratings reflects the agency’s view that the potential disruptions on payments resulting from adverse court rulings are not likely to affect the government’s ability to service debt issued in local currency under local law.

Outlook/CreditWatch

The negative outlook of the foreign currency ratings on the banks reflects the outlook on the sovereign, which in turn reflects the likelihood of a further downgrade based on possible payment interruptions or the announcement of what SP could consider a distressed debt exchange. Either a payment interruption or a distressed debt exchange would lead the agency to lower its rating on Argentina to ‘SD’, indicating selective default. SP could revise the outlook to stable if threats to debt servicing were to unexpectedly diminish, combined with steps that boost external liquidity in order to meet substantial external debt amortization next year.

SP intends to resolve the CreditWatch listing on the local currency ratings on the banks in the coming weeks, as it assesses the impact of the mentioned developments on the payment capacity in this currency.

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