Argentine ABS and RMBS transactions rated by Standard and Poor's are weathering the long and tumultuous storm, though one company analyst hinted it is likely that the worst is yet to come, and it is uncertain if the deals will be able to withstand heavy hits down the road.
Argentina stepped into this year in the double-B sovereign rating category, according to S&P, and quickly began a long and painful fall to its current SD' rating. After yet another restructuring that was deemed a default by rating agencies in October, the most recent events include restrictions that were imposed on deposit withdrawals. The regulations imposed on the first of this month force people transferring money abroad to seek authorization through Central Bank authorities. Furthermore, to prevent insolvency of the banks, the restrictions do not allow a person to withdraw more than $1000 per month from an account.
And, while the ABS and RMBS transactions rated by S&P have stood strong, market participants are wary of what will happen to them if the country slides further into the overwhelming pool of trouble. While the future remains to be seen, rumors are abound of a rapidly increasing deterioration of economic indicators, which could lead to higher unemployment and lower salary levels and, eventually, bank failures and a sharp depreciation of the local currency.
"The big danger of the deals is not much in terms of their own characteristics to their own industry, but more in terms of systemic risk in terms of what happens if things go really wild," said the S&P analyst. "If things get worse, our expectation is that deals are still going to perform, but there's always a limit to what a deal can sustain and what a deal can resist," the analyst said.
According to the analyst, other ABS and RMBS transactions not rated by S&P have defaulted. Nevertheless, the deals that have yet to hit a bumpy road are believed to have survived well thus far as a result of adequate coverage and adequate structure enhancements, and therefore the senior classes are protected from a payment default.
Separately, Fitch lowered Argentina's sovereign rating to DDD' from C' last week after the bank restrictions were imposed.