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Jamaica debt exchange plan an "Event of Default," says Moody's
Published on Saturday, January 16, 2010 Email To Friend Print Version
By Ben Livesey and Veronica Navarro Espinosa
NEW YORK, USA (Bloomberg) -- Moody’s Investors Service joined Standard & Poor’s in saying it considers Jamaica’s debt-exchange proposal for domestic creditors a default on some of its bonds, adding that the plan will help stabilize the nation’s finances.
The government announced a local debt exchange that will give creditors bonds with longer maturities and lower interest rates. The International Monetary Fund reached an agreement yesterday to provide Jamaica a $1.25 billion loan on condition that the swap is a success.
“The country’s rating could be upgraded once the debt exchange is completed, if it proceeds as expected and if multilateral financing is secured,” Moody’s said in a report. It said it regards the exchange “as an event of default.”
Jamaica has been hurt by a drop in tourism and remittances because of the worst global recession since World War II. IMF Managing Director Dominique Strauss-Kahn said in a statement that the 27-month accord may be presented to the fund’s board of directors “in the next few weeks” for official approval. The loan may help release another $1.1 billion in funding from other international institutions, the IMF said.
“Jamaica has been hit hard by the global financial crisis and has been suffering from years of subpar growth,” Strauss- Kahn said. “Strong policies and an ambitious reform agenda are necessary now to start a process of transformation in the Jamaican economy.”
Moody’s said it will make a technical adjustment to its Caa1 rating in the near future after assessing losses. The exchange will safeguard the principal while cutting the average coupon to around 11 percent from around 17 percent, as well as extending the average debt maturity to about five years from two, it said.
S&P, which previously had Jamaica’s foreign debt rated CCC, or eight levels below investment grade, said it cut the international rating to SD because some of the local debt is denominated in foreign currencies. It cut the bonds involved in the exchange to D. Fitch Ratings yesterday cut Jamaica’s local currency debt to C from CCC and held the foreign debt rating at CCC, saying the swap doesn’t affect international bonds.
Investors “will receive less value than promised” when the bonds were first issued, S&P analyst Roberto Sifon Arevalo wrote yesterday in a report. “We view this offer as distressed.”
Once the debt exchange has been completed, S&P said it expects to assign the new bonds a rating of B-, or six levels below investment grade. The restructuring, which may be completed next month, along with new multilateral loans will ease the country’s financing needs, Arevalo said.
The IMF loan comes with conditions on economic policy, including a reduction in spending in an effort to trim debt that’s currently 135 percent of Jamaica’s gross domestic product. To protect the poorest, it enables a 25 percent expansion of social safety-net spending.
The government has also pledged to overhaul its debt management strategy and strengthen its financial system, according to the IMF, which forecasts Jamaica’s economy will contract 3.5 percent in the fiscal year ending March and grow 0.5 percent the following year.
Reads : 234
Published on Saturday, January 16, 2010 Email To Friend Print Version
By Ben Livesey and Veronica Navarro Espinosa
NEW YORK, USA (Bloomberg) -- Moody’s Investors Service joined Standard & Poor’s in saying it considers Jamaica’s debt-exchange proposal for domestic creditors a default on some of its bonds, adding that the plan will help stabilize the nation’s finances.
The government announced a local debt exchange that will give creditors bonds with longer maturities and lower interest rates. The International Monetary Fund reached an agreement yesterday to provide Jamaica a $1.25 billion loan on condition that the swap is a success.
“The country’s rating could be upgraded once the debt exchange is completed, if it proceeds as expected and if multilateral financing is secured,” Moody’s said in a report. It said it regards the exchange “as an event of default.”
Jamaica has been hurt by a drop in tourism and remittances because of the worst global recession since World War II. IMF Managing Director Dominique Strauss-Kahn said in a statement that the 27-month accord may be presented to the fund’s board of directors “in the next few weeks” for official approval. The loan may help release another $1.1 billion in funding from other international institutions, the IMF said.
“Jamaica has been hit hard by the global financial crisis and has been suffering from years of subpar growth,” Strauss- Kahn said. “Strong policies and an ambitious reform agenda are necessary now to start a process of transformation in the Jamaican economy.”
Moody’s said it will make a technical adjustment to its Caa1 rating in the near future after assessing losses. The exchange will safeguard the principal while cutting the average coupon to around 11 percent from around 17 percent, as well as extending the average debt maturity to about five years from two, it said.
S&P, which previously had Jamaica’s foreign debt rated CCC, or eight levels below investment grade, said it cut the international rating to SD because some of the local debt is denominated in foreign currencies. It cut the bonds involved in the exchange to D. Fitch Ratings yesterday cut Jamaica’s local currency debt to C from CCC and held the foreign debt rating at CCC, saying the swap doesn’t affect international bonds.
Investors “will receive less value than promised” when the bonds were first issued, S&P analyst Roberto Sifon Arevalo wrote yesterday in a report. “We view this offer as distressed.”
Once the debt exchange has been completed, S&P said it expects to assign the new bonds a rating of B-, or six levels below investment grade. The restructuring, which may be completed next month, along with new multilateral loans will ease the country’s financing needs, Arevalo said.
The IMF loan comes with conditions on economic policy, including a reduction in spending in an effort to trim debt that’s currently 135 percent of Jamaica’s gross domestic product. To protect the poorest, it enables a 25 percent expansion of social safety-net spending.
The government has also pledged to overhaul its debt management strategy and strengthen its financial system, according to the IMF, which forecasts Jamaica’s economy will contract 3.5 percent in the fiscal year ending March and grow 0.5 percent the following year.
Reads : 234
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