Fitch downgrades YPF

Fitch Ratings said it downgraded YPF SA's foreign-currency issuer default rating to B from B+, its local-currency issuer default rating to BB- from BB and its $100 million notes due 2028 to B+ and affirmed the recovery rating assigned to the notes at RR3.

The agency affirmed YPF's national issuer default rating, $50 million class III notes and ARS 100 million class V notes at AAA(arg). The outlook is stable.

The downgrade follows the decision by two of Argentina's oil-producing provinces, Chubut and Santa Cruz, to withdraw concessions from YPF. These concessions represent only 2.76% and 2.38%, respectively, of YPF's total production and reserves in 2011, the agency said, but an extension of government control over YPF's operations in other energy-rich areas could affect the company's cash flow.

In addition, the announcement on of a change in the company's dividend policy for this year might reduce the likelihood of support from YPF's controlling shareholder, Repsol YPF SA, in the event of distress, Fitch said. YPF's board announced that it would capitalize dividends in relation to accumulated results for 2011 and thus would not pay any cash dividends. As a result, Fitch downgraded Repsol YPF's rating to BBB from BBB+ and decided to deconsolidate YPF from Repsol's financial statements.

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