Bond rater Fitch chopped Argentina's rating Tuesday by five notches to CC, deep in junk territory, saying it expects Buenos Aires to default after a US court ordered it to repay old debt.
The downgrade "reflects Fitch's view that a default by Argentina is probable," the agency said.
The downgrade came after a New York judge ruled on November 21 that Argentina must repay holders of some $1.3 billion worth of bonds the country already defaulted on 11 years ago.
The judge said that Argentina would have to repay the bondholders by December 15, concurrent with the country's obligation to pay out another $3 billion on previously restructured debt.
Fitch said it did not expect Buenos Aires, already struggling with deteriorating state finances, would make the payments.
Argentina has refused to pay the debt, saying the bonds are held by predatory hedge funds which did not take part in an earlier bond swap with investors to resolve the 2001 sovereign default.
After the November 21 ruling, Economy Minister Hernan Lorenzino said at a news conference said the country would appeal the decision.
"We do not think it is right or legitimate to pay vulture funds," he said.
Fitch said it will monitor how the case evolves and the Argentine government's response in the coming weeks, but said a missed payment would constitute a default.
Fitch added that the downgrade reflects the "sustained deterioration" of Argentina's finances.
"The uncertainty related to the impact of the US court ruling is likely to further damage confidence and intensify political and social tensions in the country and undermine growth prospects," it said.
"Argentina's economy has decelerated sharply in 2012 owing to the increased state intervention. This has been highlighted by the progressive tightening of capital controls, the nationalization of YPF and the inability of certain provinces to access USD to repay their dollar-denominated debt under local law."