Puerto Rico’s failure to fully pay a $58m obligation is only the tip of the iceberg, analysts with credit rating agency Moody’s said on Monday.
Emily Raimes, an analyst with Moody’s, said the rating agency viewed the missed paymenton Public Finance Corporation obligations as a default and signalled that further failures were to come.
“Puerto Rico does not have the resources to make all of its forthcoming debt payments,” Ms Raimes said. “This is a first in what we believe will be broad defaults on commonwealth debt.”
The PFC bonds, which require an appropriation by the legislature, hold fewer protections than “general obligation” bonds issued by the Puerto Rican government.
Investors are likely to see lower recovery rates if the territory restructures its debts as the US commonwealth prioritises which bond payments it makes over the remainder of the year, traders and analysts have said.
Puerto Rico is set to default on some of its debts this weekend after years of battling to stay current on its obligations, signalling the start of a long and contentious restructuring process for the US commonwealth’s $72bn debt pile.
The territory, which successfully scrambled to make a $169m payment on debts owed by the Government Development Bank on Friday, did not make a $58m payment on Public Finance Corporation bonds, according to Victor Suarez, chief of staff for Puerto Rico’s governor.
“We don’t have the money,” he said on Friday, according to newswire reports. “The PFC payment will not be made this weekend.”
The missed payment would push Puerto Rico formally into default after the close of business on Monday said credit rating agency analysts. The PFC bonds are the first to fall into arrears, and a government “working group” is racing to come up with a plan to restructure the territory’s debts and overhaul its economy.
Puerto Rico governor Alejandro Garcia Padilla startled investors earlier this year when he said the commonwealth would not be able to pay off all of its debts and required a restructuring, a move many bondholders — especially creditors to the government itself — are loath to accept.
India’s credit rating is likely to withstand a surge in the sales of shares and bonds by overseas investors triggered by a growing tax row, rating agencies Moody’s and Fitch told Reuters on Thursday.
“India’s external balances are strong relative to peers on some accounts, and can withstand the current outflows, for instance due to the high level of foreign-exchange reserves,” said Thomas Rookmaaker, director at Fitch’s Asia-Pacific Sovereign Group, wrote in an email to Reuters.
Fitch affirmed its “BBB-minus” and “stable” outlook on India last month.
Overseas funds chalked up their biggest single-day sales of Indian shares and bonds in a year and a half on Wednesday, fueling concern Asia’s third-largest economy will drive off foreign investors with its minimum alternate tax (MAT).
The Conservatives’ surprise UK election victory will have no direct impact on the country’s sovereign credit rating. The party is committed to further fiscal consolidation, Moody’s Investors Service said in a report on Friday. However, the credit impact on specific sectors will be more pronounced.
The report “Winners and losers from the Conservative election victory”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.
“The election result has no impact on the UK’s sovereign impact. The Conservatives have committed to pursuing further fiscal consolidation to stabilise and eventually reverse the rising public debt,” says Kathrin Muehlbronner, a Moody’s Senior Credit Officer and a co-author of the report. “However, the issue of Britain’s continued membership of the European Union could have broader consequences.”
If the Conservative Party’s plan to hold a referendum on European Union membership resulted in the UK’s exit, this could have further consequences for the whole economy. There could be potential repercussions for the sovereign rating if the UK is unable to broadly replicate the benefits of EU membership. The outcome of a referendum remains highly uncertain.
The election result’s impact on specific sectors will be more marked.
The final results of the UK general election are still dripping in but already minds are turning to how the potential policies of a new Conservative government could affect the economy.
Rating agency Moody’s has reassured that the election will have no impact on the UK’s credit rating but it has warned that if the Conservative Party presses ahead with a promised referendum on Britain’s membership of the European Union — there would potentially be ramifications.
In a note reacting to the election result, which produced a surprisingly convincing victory for the Conservatives, Kathrin Muehlbronner, vice president-senior credit officer at Moody’s said:
if the Conservative Party’s plan to hold a referendum on European Union membership results in the UK’s exit this could have consequences for the whole economy, including potentially for the sovereign rating, if the UK was unable to broadly replicate the benefits of membership.
UK equities have enjoyed a relief rally on Friday, with the FTSE 100 trading up 1.97 per cent at 7,022.76 at publication time while the more domestic-focused FTSE 250 has gained 3 per cent to 17,949.07.
The ultra-low yields gripping global capital markets made their mark on an ancient seat of learning this week, as an Oxford college became the first UK university institution to issue a bond in 2015.
The £40m bond, which was launched this week by University College, Oxford and matures in 50 years, carries a coupon of 3.1 per cent.
The debt, which was pre-placed on the London Stock Exchange, is lower yielding than any bond issued by a UK university on record, according to Dealogic.
University College’s bond is a sign that a wider range of issuers — from the boardrooms of multinational corporations to the spires of august educational institutes — are aware of the opportunity to lock in long-term credit at historically low rates.
“We were struck by the level of interest rates and it seemed to be an opportunity to bring in external capital for the long-term on good terms,” said Frank Marshall, estates bursar at the Oxford college.
Moody’s Investors Service says that how recently elected leaders in India and Indonesia implement their pledges to improve infrastructure and governance will determine the respective credit trajectory of each sovereign, both rated Baa3.
According to Moody’s, India and Indonesia’s growth will continue to outperform similarly rated peers, and macroeconomic policy vigilance is likely to contain inflation and balance of payments pressures in the near term. If policies also address Indonesia’s exposure to external volatility and India’s weak fiscal and banking metrics, their respective credit profiles would improve.
These conclusions are contained in the rating agency’s report titled India and Indonesia – Peer Comparison: Reform Implementation to Determine Credit Trajectories. The report is an update to the market, and does not constitute a rating action.
The report notes that India and Indonesia’s Baa3 sovereign ratings reflect shared credit strengths of robust economic size and growth, and similar credit challenges of weak governance and infrastructure. But the two sovereign’s credit profiles also have important differences. India’s fiscal metrics are weaker than Indonesia’s, and contribute to inflation and high domestic capital costs. Indonesia is more vulnerable to global trends. The Southeast Asian nation’s vulnerability stems from the larger proportion of commodities in its exports, its higher share of non-resident financing of government debt, and its shallower domestic capital market.
Moody’s Investors Service has today downgraded Greece’s government bond rating to Caa2 from Caa1. The short-term rating is unaffected by this rating action and remains at Not Prime(NP).The outlook on the rating is negative. Moody’s government bond rating applies to debt issued on private sector terms only.
This rating action concludes the review for downgrade that commenced on 6 February 2015.
The key drivers behind the downgrade are :
1) The high uncertainty over whether Greece’s government will reach an agreement with official creditors in time to meet upcoming repayments on marketable debt.
2) The significant implementation risks of a follow-up, medium-term financing programme even if an agreement is reached, given the weakened economy and a fragile domestic political environment.
The negative rating outlook reflects Moody’s view that the balance of economic, financial and political risks in Greece is slanted to the downside.
Concurrently, Moody’s has lowered the country’s local- and foreign-currency bond ceilings to B3 from Ba3, which reflects the increased probability that Greece may exit the euro area in the event of a sovereign default.
In addition, Moody’s has also lowered the local- and foreign-currency bank deposit ceilings to Caa3 from Caa1 to capture the heightened risk of a deposit freeze, if depositor confidence weakens further. The short-term local- and foreign-currency bond and deposit ceilings remain Not Prime (NP).
India’s fiscal weakness remains a vulnerable spot in its sovereign credit profile, ratings agency Standard & Poor’s said on Monday, warning that a financial or a commodity “shock” may unwind fiscal improvements.
S&P said the government’s efforts to rein-in spending indicated the high priority of fiscal prudence, but warned that spending on subsidies and heavy governmentdebt remained concerns.
“Structural fiscal weaknesses continue to be vulnerabilities of Indian sovereign creditworthiness,” S&P credit analyst Kim Eng Tan said, reaffirming India’s BBB- sovereign credit rating with a “stable” outlook.
“Although India’s budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of a financial or commodity shock,” Tan added.
Last week, Moody’s raised India’s outlook to “positive”, which brought it a step closer to an upgrade of the credit rating.
As the Ukrainian government and bondholders square up over a restructuring of the former’s debt, the country’s credit rating has been cut further into junk.
Kiev’s rating was lowered to ‘CC’ from ‘CCC-,’ by Standard & Poor’s on Friday, as the agency concluded that “a default on foreign currency central government debt is a virtual certainty.”
The government has said it plans to find about $15bn of debt relief, warning bondholders that this could include reductions in principals as well as lower interest payments and extended repayment schedules.