Investors scrambled Thursday to figure out which if any corporations in Argentina will avoid defaulting on their debt if a bill that would constrain private sector bond payments is passed into law.

While several Wall Street analysts said the bill, which passed the Senate on Wednesday, sets the stage for widespread defaults, the ratings agencies have identified some companies that may remain solvent thanks to backing from their non-Argentine-based parent corporations.

In early December the Argentine government issued regulations saying that companies must get authorization from the central bank before making debt payments to foreign bondholders.

The bill, which could be approved by the lower house and then signed into law, raising the specter of widespread corporate defaults.

"Now the central bank will have a law saying that external transfers are banned with the exception of export-related transactions and those transfers that the central bank deems necessary," said Christian Stracke, chief Latin American debt strategist at Commerzbank Securities.

"But the central bank is going to look at the spirit of this law -- which in effect says 'no debt payments abroad' -- and it is going to enforce it," Stracke said.

The measure is seen by Wall Street as another nail in the coffin of the recession-plagued country's creditworthiness after defaulting on sovereign debt several weeks ago. Diplomats from developed countries in Buenos Aires said companies plan to scale back investments here if not withdraw altogether.

Corporate bond payments are to be restricted until the country's public and private debt is restructured, according to the measure.

"That means you are probably not going to see a dime in private external debt payments for at least a year, if that," Stracke said.

RATINGS ON THE LINE

As the bill winds its way through the legislature, Moody's Investors Service and Standard & Poor's are taking heat from Wall Street for allowing certain Argentine corporations to be rated above the country's sovereign level.

"I think it is fair to say we will be reviewing the policy," Laura Feinland Katz, chief credit officer for Latin American ratings at Standard & Poor's, said in a conference call with analysts on Wednesday.

"In certain countries, Argentina being one, we thought that the likelihood of the sovereign imposing exchange controls was less than the likelihood of sovereign default. In Argentina we thought this was the case because it was such a highly dollarized economy," she said.

Marco Santamaria, a sovereign strategist at Lehman Brothers, pressed Feinland Katz on the question during the conference call.

"Some of the notions by which they assigned corporate ratings have proven to be questionable, at best; particularly the issue of dollarization as somehow implying a lower probability of foreign exchange controls," Santamaria said Thursday.

One thing the ratings agencies and Wall Street analysts agree on is their disapproval of the controls contained in the bill.

"It's an additional example of the government tampering with private sector contracts," Feinland Katz said. "As others have been saying, its another blow to the system. It's a blow to credibility, from the creditors' perspective."

S&P started allowing Argentine companies to rise above the sovereign rating in 1997. At that time S&P rated Argentina BB. The country has since fallen to SD, or "selective default."

The four Argentine companies currently rated above SD -- oil and gas company Repsol-YPF, Pan American Energy LLC, Camuzzi Gas Pampeana SA and Perez Companc SA main unit Pecom Energia -- are supported by either strong corporate parents or offshore operations.

Moody's rates only two Argentine corporation above the sovereign CA. They are YPF and Telefonica de Argentina , which Moody's believes may yet avoid default if their parent corporations step in to help pay bond service. Spain's Telefonica SA owns most of the Argentine telecoms provider.

"We will study whether these developments in Argentina change our view regarding foreign support," said Vincent Truglia, co-head of the sovereign risk unit at Moody's.

"Telefonica for example has certainly shown a strong inclination to help out Telefonica de Argentina," Truglia said. "But will the government in Buenos Aires actually attempt to not allow such help? That would seem to be counterproductive but that is for the government to decide."

BLEAKNESS WITH OR WITHOUT MORATORIUM

"The law would make it more likely that corporations will default on their debts. But even without the law, the most likely scenario is that there would be corporate failures anyway," said Fernando Losada, senior Latin American economist at ABN-AMRO.

Optimists expect the Argentine economy will contract by 5 percent to 7 percent this year. Pessimists see a contraction of up to 20 percent, Losada noted.

"It's obvious that in a scenario like that there will be a lot of corporate failures because aggregate demand is going nowhere," he said.