The Argentine sting that has been festering and taunting investors over the last several months will likely begin to bleed as early as next month as some deals, especially those tied to multilateral insurers, have begun dying a slow death.

Transportadora de Gas del Norte SA (TGN), a large Argentine natural gas distributor, is the originator of TGN IFC Trust I, TGN IFC Trust II and CRIBS Financial Trust I. TGN is expected to default on its interest payments for the IFC series I and series II deals coming due at the end of this month.

In these transactions, the International Finance Corp. has provided a preferred creditor status umbrella, a policy that acknowledges favorable creditors in developing countries. In December and January, TGN said it was unable to meet the interest payments due to the IFC and investors, and as a result, drew upon its letter of credit reserve fund provided by ING Barings. The reserve fund is now exhausted however, as it only allotted for two interest payments.

"It's TGN's decision as to whether they will comply," said Juan Pablo de Mollein, Argentine analyst at Standard and Poor's. "TGN has already said that they have problems, that they are in a difficult situation, and they haven't said anything with regard to whether they are going to make their payment."

TGN owes $3.3 million by the end of the month, and given that S&P has recently downgraded the transactions to CCC-' from CC,' Mollein said it is unlikely that the company will make its scheduled payment.

TGN also turned to the letter of credit reserve fund last month, provided by the Bank of Nova Scotia, for it's CRIB transaction. Although the next interest payment on this transaction is not due until mid year, it is expected that going forward the company will also default on this transaction. Unlike the IFC deals, this transaction also benefits from a $175 million political risk insurance policy issued by the Overseas Private Investment Corp.

According to market sources, TGN is expected to begin requesting money from its transfer and convertibility policy. "It depends on OPIC's view as to whether or not the currency issue in Argentina can be seen as a transfer and convertibility event, or if they can see restrictions when transferring and converting money," Mollein said. "There are several views because there are restrictions on transfer and convertibility in Argentina, but there are some exceptions for companies especially those owing money to multilateral agencies."

While the payment schedule and the political risk insurance provides a bit more protection for investors at the moment, Mollein warned that the creditworthiness of the obligor is the same as the IFC deals.

S&P is also predicting that transactions with multilateral connections issued by Transportadora de Gas del Sur SA (TGS) and Aguas Argentinas, are headed for the same troubles as TGN.

With all the problems in Argentina at the moment, the most severe threat to existing transactions is the devaluation of the peso and the restrictions on transferring and converting money.

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