Barbados' Global Bonds Due 2021 Downgraded To 'D' from 'CC'; 'SD' Long-Term Foreign Currency Sovereign Rating Affirmed
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OVERVIEW
- On June 15, 2018, Barbados failed to make a coupon payment due on its
foreign currency 7.25% notes due 2021, and we do not expect the
government to make this payment.
- In line with our criteria for timeliness of payments, we are lowering the
issue-level rating on these notes to 'D' from 'CC'.
- We are also affirming our long-term foreign-currency sovereign credit
rating on Barbados at 'SD', and our 'D' issue-level rating on the 6.625%
notes due 2035.
- Another three long-term foreign currency issue ratings and the local
currency sovereign credit and issue-level ratings remain on CreditWatch
with negative implications, reflecting our view that Barbados could miss
payments on its foreign and local currency debt within the next three
months.
RATING ACTION
On June 18, 2018, S&P Global Ratings lowered its issue-level rating on
Barbados' global bonds due 2021 to 'D' from 'CC'. At the same time, S&P Global
Ratings affirmed its 'SD/SD' long- and short-term foreign currency sovereign
credit ratings on the country. The 'CC/C' long- and short-term local currency
sovereign credit ratings remain on CreditWatch with negative implications,
where they were placed June 6, 2018. S&P Global Ratings also rates three
foreign currency senior unsecured debt issues 'CC', and those are also on
CreditWatch with negative implications. S&P Global Ratings affirmed its 'CC'
transfer and convertibility assessment on the government. Finally, S&P Global
Ratings affirmed its 'D' (default) rating on the country's 6.625% notes due
2035.
CREDITWATCH
The CreditWatch placement 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 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 ratings that
reflect Barbados' post-exchange creditworthiness.
RATIONALE
On June 15, 2018, Barbados missed a coupon payment on its 7.25% notes due
2021, and we do not expect the government to make this payment. In accordance
with our criteria, "
Methodology: Timeliness Of Payments: Grace Periods,
Guarantees, And Use Of 'D' And 'SD' Ratings," we lowered the issue-level
rating to on this bond issuance.
Overdue coupons now include the following two issues:
- US$190 million 6.625% bonds due Dec. 5, 2035
- US$150 million 7.25% bonds due Dec. 15, 2021
On June 1, the country's newly elected prime minister, Mia Mottley of the
Barbados Labour Party (BLP), announced that the government would immediately
suspend payments on its debt to external commercial creditors. Ms. Mottley
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 creditors. The government will also negotiate with external creditors to
restructure its external debt. The announcement came one week after the BLP
won an absolute majority in the country's general election.
To address the country's economic challenges, the government is in talks with
the International Monetary Fund (IMF) regarding economic policies that could
support an IMF-supported program. The IMF visited the country from June 5-7
and we expect it to conduct another mission within the next six weeks.
Amid high current account deficits and limited external inflows, external
liquidity has weakened. Reserves reached US$220 million as of May 31, 2018.
Usable international reserves, which we analyze in assessing international
liquidity, are even lower; 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.
While the new administration introduced a series of budget measures as part of
its economic adjustment plan June 11, which the government expects will lower
the deficit to 1.4% of GDP this fiscal year, these measures are only the first
part of the adjustment plan. Reportedly, the government also expects to
address more complex, structural issues. We believe that the government will
discuss these issues with the IMF under the potential IMF-supported program.
We expect that these additional measures will likely modify current budget
assumptions.