Low blow


Barbados’ creditworthiness has now sunk to its lowest rating ever following a string of downgrades during the past several years – and missed payments on the nation’s surging debt.

In its latest assessment of Barbados published today, international rating agency Standard & Poor’s (S&P) lowered the issue-level ratings on this country’s global bonds to ‘D’ or default.

S&P said the bonds, which are due next year and in 2022 were previously rated at ‘CC’.   That is junk bond where the issuer, in this case Barbados, is at greater risk of default than a ‘CCC’-rated issue and less than a ‘C-rated issue, if business, financial or economic conditions change measurably.

S&P blamed placing the bonds in default territory on missed payments by the Government in Bridgetown.

“On August 4 and August 6, 2018, Barbados missed coupon payments on its global bonds due 2022 and 2019, and we do not expect the Government to make them,” said S&P.

This followed the June 1 decision by the Mia Mottley administration to suspend its debt payments owed to external commercial creditors and to ask local creditors to roll over principal maturities until Government reaches an agreement with its creditors.

But the bonds are not the only thing that got slapped down.

S&P also lowered its short and long-term local currency sovereign issuer credit ratings to ‘SD’ or “selective default” – down from ‘CC’ and ‘C’.

‘SD’ is where a sovereign nation enters “selective default” when it elects to delay repayment of some of its financial obligations while fully honouring others. The idea is that eventually everyone gets paid somehow.

SP also affirmed its short and long-term foreign currency credit ratings on the country and its default ratings on the island’s 6.625 per cent notes due in 2035 and 7.25 per cent notes due in 2021.

“S&P Global Ratings affirmed its ‘CC’ local currency issue-level ratings on debt for which Barbados remains current. Finally, S&P Global Ratings affirmed its ‘CC’ transfer and convertibility assessment on the country,” added the ratings agency.

So with these latest bonds default, Barbados’ overdue international coupons now include US$190 million at 6.625 per cent due on December 5, 2035; US$150 million at 7.25 per cent due December 15, 2021; US$200 million, at seven per cent due August 4, 2022 and US$40 million, at 7.8 per cent due August 6, 2019.

S&P noted that its selective default long and short-term local currency ratings reflect Government’s “automatic” principal payment rollover of its short-term local currency treasury bills, which it considered tantamount to default in accordance with its criteria.

“We do not expect the Government to make these payments in the near term. We have no local currency short-term issue-level ratings outstanding. Our ‘CC’ long-term local currency issue-level ratings reflect our view that these issues are highly vulnerable to nonpayment and a default on these issues is a virtual certainty,” S&P said.

Making reference to the present balance of payments support talks between the Mottley administration and the International Monetary Fund (IMF), the rating agency said it expected “close” dialogue to continue regarding plans that could underpin IMF financial assistance through a staff-level agreement.

“While the new administration on June 11 introduced a series of revised 2018-2019 budget measures as part of its economic adjustment plan, which targets a primary surplus of six per cent of GDP [gross domestic product], these targets are subject to change in light of the ongoing negotiations and because of the finalized detailed package of fiscal measures,” S&P stated.

The agency noted that throughout this process, Government plans to continue its talks with the Social Partnership, a group that the administration has revived, in part to build support for fiscal discipline across sectors.

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