Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 2 (4 lettori)

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Barbados Long-Term Foreign Currency Rating Lowered To 'SD' After Missed Coupon Payment
  • 06-Jun-2018 13:13 EDT
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RATINGS
Foreign Currency: SD/--/SD
Local Currency: CC/Watch Neg/C
For further details see Ratings List.

OVERVIEW

  • On June 1, 2018, Barbados' newly elected government announced it would
    immediately suspend its external debt service payments and seek to make
    interest payments on its domestic debt while negotiating a restructuring
    agreement with domestic creditors.
  • On June 5, 2018, Barbados failed to make an interest payment due on its
    6.625% notes due 2035, and we do not expect such a payment to be made. We
    also believe that Barbados will fail to pay its other outstanding
    external debt obligations as they come due while it negotiates a
    restructuring agreement with external creditors.
  • We are therefore lowering our long-term foreign currency sovereign credit
    rating on Barbados to 'SD' (selective default) from 'CCC+' and our
    long-term local currency rating to 'CC' from 'CCC'. We are also lowering
    our long-term foreign currency issue rating on Barbados' 2035 notes to
    'D' from 'CCC+'.
  • Another four long-term foreign currency issue ratings and the local
    currency sovereign issuer credit and issue ratings are on CreditWatch
    negative, reflecting our view that the sovereign could miss payments on
    its foreign and local currency debt within the next three months.
RATING ACTION
On June 6, 2018, S&P Global Ratings lowered its foreign currency sovereign
issuer credit ratings on Barbados to 'SD/SD' from 'CCC+/C'. At the same time,
we lowered our long-term foreign currency issue rating on the 6.625% notes due
2035 to 'D' from 'CCC+'. We also lowered our other long-term foreign currency
issue ratings to 'CC' from 'CCC+' and placed them on CreditWatch with negative
implications. In addition, we lowered our long-term local currency sovereign
issuer credit and issue ratings to 'CC' from 'CCC' and placed them on
CreditWatch with negative implications, and we affirmed our short-term local
currency rating at 'C'. Finally, we lowered our transfer and convertibility
assessment to 'CC' from 'CCC+'.

CREDITWATCH
Our CreditWatch negative reflects our opinion that there is a greater than
one-in-two chance that Barbados could default again on its local and foreign
currency debt within the next three months. We could lower the local currency
sovereign issuer credit rating to 'SD' if Barbados fails to make debt service
payments on its local currency debt or executes an exchange with bondholders.

Upon completion of any bond restructuring, we will assign new foreign and
local currency sovereign issuer credit and issue ratings that reflect
Barbados' post-exchange creditworthiness.

RATIONALE
Our ratings on Barbados reflect its selective default on its external debt
obligations and our view that a default on its local currency debt obligations
is a virtual certainty.

On June 1, 2018, Barbados' newly elected Prime Minister, Mia Mottley of the
Barbados Labor Party (BLP), announced that the government would immediately
suspend payments on its debt owed to external commercial creditors. The prime
minister also stated that the government would strive to meet its interest
payment obligations on its domestic debt but would ask domestic creditors to
roll over principal maturities until the government reached a restructuring
agreement with its domestic creditors. The government will also negotiate with
external creditors to restructure its external debt. The government's
announcement comes one week after the BLP won an absolute majority in the
country's general election.

Following the missed interest payment on the government's 6.625% notes due
2035 on June 5, 2018, we do not expect the government to subsequently make
this payment in light of its announcement. Per our ratings definitions, an
obligation rated 'D' is in default or in breach of an imputed promise, while
an issuer rated 'SD' is in default on one or more of its financial
obligations.

At the same time, although the government intends to meet its interest payment
obligations on its domestic debt, we would likely treat its request to roll
over principal on this debt as a default given the nature of the request amid
stressed financing conditions and limited options for bondholders. The
government's next significant domestic bond maturity is its Barbados dollar
(BB$) 100 million 4.375% Treasury notes due on June 30, 2018.

Prior to this development, Barbados' history of wider fiscal deficits and low
growth since the global financial crisis has resulted in a significant
increase in the government's debt burden. Net general government debt reached
nearly 95% of GDP in 2017, one of the highest debt levels among Latin American
and Caribbean sovereigns. The government has not issued in the global capital
markets since 2013. Limited appetite for government paper in the local market
in recent years led to reliance on financing from public-sector entities,
including the central bank.

Amid high current account deficits and limited external inflows, external
liquidity has been weakening. Reserves reportedly reached US$220 million as of
May 31, 2018. The decline in international reserves has increased the
vulnerability of Barbados' currency peg and increases the risk of a
balance-of-payments crisis. As a result, the new government has also announced
its intention to seek balance-of-payments support from the International
Monetary Fund (IMF), which is scheduled to visit the country this week. IMF
financial support should strengthen the country's external position. Barbados'
usable reserves have been negative since 2013, and the position continues to
deteriorate, in part because of the central bank's historical deficit
financing, which has expanded the monetary base in the past. We subtract the
monetary base from international reserves because reserve coverage of the
monetary base is critical to maintaining confidence in the exchange-rate
regime.

We expect the new government to significantly modify existing fiscal targets
as a part of its new macroeconomic framework. As a part of this framework,
which we expect to be discussed with the IMF, the government has stated its
intention to present a balanced budget by next year. However, the details of
this plan and how it will incorporate election promises--including the
elimination of the National Social Responsibility Levy, the resolution of the
country's sewage crisis, an increase in pensions, delivery of free university
education, and improved transportation and trash collection--remain to be
formulated.
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Nicaragua, Government of
Related Research
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Credit Opinion: Government of Nicaragua – B2 Stable: Update following outlook change to stable
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Outlook: Sovereigns – Latin America & Caribbean: 2018 outlook stable as growth momentum offsets rising debt and policy uncertainty

Rating Action:
Moody's changes Nicaragua's rating outlook to stable from positive; B2 rating affirmed

13 Jun 2018
New York, June 13, 2018 -- Moody's Investors Service ("Moody's") has today changed Nicaragua's rating outlook to stable from positive and affirmed its B2 long-term issuer ratings.



In Moody's view, the factors that supported its July 2017 decision to assign a positive outlook on Nicaragua's rating have dissipated following what it believes is a marked weakening of the country's consensus-building institutions following recent episodes of social unrest triggered by the government's attempt to reform its pension system.



The country's increasingly established track record of consensus-building policymaking and the planned pension reforms for this year were the two key drivers supporting the positive outlook. Now, however, the shifting political and institutional landscape has increased uncertainty regarding policy direction; and, related to that, likely delays in pension reforms point to budgetary outcomes potentially weaker than the rating agency had previously assumed.



The affirmation of the B2 rating reflects credit strengths including the country's strong medium-term potential growth as well as debt and interest burdens that are lower than peers. These strengths balance the credit challenges posed by low per capita income, institutional shortcomings, and a high share of foreign currency-denominated government debt, although this external debt is mainly owed to multilateral creditors and has a very long maturity profile.



Nicaragua's foreign and domestic currency bond and deposit ceilings were unaffected by today's outlook change. The long-term foreign currency bond and bank deposit ceilings remain at B1 and B3, respectively. The short-term foreign-currency bond and deposit ceilings remain at NP. The long-term local-currency bond and bank deposit ceilings remain at Ba3.



RATINGS RATIONALE



RATIONALE FOR CHANGE IN OUTLOOK TO STABLE FROM POSITIVE



BREAKDOWN OF NICARAGUA'S CONSENSUS-BUILDING POLICYMAKING MODEL



Over the past decade, Nicaragua's consensus-building policymaking model bringing together government, business, labor and other key institutions in a cooperative framework emerged as an important supportive feature of the country's credit profile, providing macroeconomic policy predictability. The presence of a prudent and predictable policy framework with strong support from the private sector has contributed positively to economic growth, a condition that made Nicaragua attractive to investment in general, and foreign direct investment in particular, relative to some other Central American countries. Moody's decision to assign a positive outlook last year reflected the longer-term economic and fiscal benefits likely to be derived from the strengthening institutional framework.



Recently, however, social protests triggered by a pension reform unilaterally introduced by the government in April -- which was subsequently reversed -- have significantly weakened this consensus-building institutional setting. Attempts to maintain a national dialogue have proven unsuccessful and increased tensions between the government and all other sectors of society are evident. So far, there is no indication that a constructive dialogue will emerge as the positions of various social groups have become more polarized. While a resolution of this political and social unrest could surface in the coming months, it is becoming increasingly likely that the country's consensus-building model has been permanently weakened, reducing the effectiveness and predictability of policy.
 
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