Agencies Chop Jamaica on Swap

Despite the absence of a haircut on principal, S&P and Fitch view Jamaica’s restructuring as a default and have lowered credit ratings. Fitch cut the long-term local currency rating to C from CCC, while S&P reduced foreign and local currency ratings to SD from CCC/C, and local bonds included in the exchange to D from CCC. Both agencies, however, note that a successful transaction would be positive and result in reassigning a single B level mark upon successful completion. “The debt exchange, if successful, will substantially reduce the government’s near-term debt service costs and create the fiscal space for public finance and economic reform as well as unlock support from the IMF and other multilateral creditors,” Fitch says. Fitch also notes that the proposed domestic debt exchange is unlikely to undermine the solvency of the banking sector, though lower yields on the new securities will negatively affect near-term profitability. Fitch’s outlook remains negative. S&P assigns a recovery rating of 4.