Standard & Poor’s Ratings Services announced yesterday that it lowered its long-term foreign currency ratings on the Dominican Republic’s 2006 and 2013 global bonds to ‘D’ from ‘CC’ following the announcement of a bond exchange offer. On 1 February 2005, Standard & Poor’s had lowered its long- and short-term foreign currency sovereign credit ratings on the republic to ‘SD’ due to arrears to private commercial bank creditors.
They explain, nevertheless, that once the exchange and commercial bank agreement have concluded, the firm will likely raise its ratings on the Dominican Republic to ‘B’, reflecting a forward-looking assessment of the republic’s creditworthiness.
The firm states that they perceive there is a commitment to engineer a sustained fiscal adjustment and improved expectations following a reprofiling of scheduled amortization that will likely ease real interest rates and boost business confidence. “This in turn, could put the government’s robust growth projections-4% per annum for several years, beginning in 2006-within reach and contribute to a further lowering of its already-moderate debt burden.
Standard & Poor’s considers the bond offering transaction a distressed exchange because the new bonds provide bondholders with less-favorable terms (maturities are being extended at interest rates similar to those in existing bond agreements with some of the interest capitalized) and because of the possible consequences should the exchange fail. The Dominican Republic’s fiscal position and amortization schedule indicate that existing bondholders may have few alternatives to accepting the exchange offer.
The rating agency says in a 21 April release that once the new bonds are issued in May 2005, they will consider the default on the bonds to be cured. However, an agreement with commercial bank creditors could take longer to complete and the foreign currency ratings
will remain at ‘SD’ until that time.
The firm states that they perceive there is a commitment to engineer a sustained fiscal adjustment and improved expectations following a reprofiling of scheduled amortization that will likely ease real interest rates and boost business confidence. “This in turn, could put the government’s robust growth projections-4% per annum for several years, beginning in 2006-within reach and contribute to a further lowering of its already-moderate debt burden.