TEXT-S&P cuts Grenada's FC rating to 'SD' on missed payment

Mon Oct 8, 2012 4:59pm EDT

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Overview

-- The government of Grenada failed to pay the coupon due Sept. 15, 2012, on its US$193 million bond due in 2025.

-- We are lowering our foreign currency sovereign credit ratings on Grenada to 'SD' from 'B-/B'.

-- We are lowering the local currency sovereign credit ratings to 'CCC+/C' from 'B-/B' because of the severe liquidity constraints the country is facing.

-- The outlook on the long-term local currency rating is negative, reflecting downside risks to the ratings if liquidity pressures were to intensify. Rating Action On Oct. 8, 2012, Standard & Poor's Ratings Services lowered its foreign currency sovereign credit ratings on Grenada to 'SD', selective default, from 'B-/B'. At the same time, we lowered our local currency sovereign credit ratings on Grenada to 'CCC+/C' from 'B-/B'. The outlook on the long-term local currency rating is negative. Rationale The downgrade to 'SD' follows the government's failure to pay the coupon due Sept. 15, 2012, on its US$193 million bond due in 2025. In its Sept. 12, 2012, statement to bondholders, the government of Grenada stated its intention to use its best efforts to pay the coupon within a 30-day grace period. However, according to our criteria (cited below), we consider an obligation in default unless payment is made within five business days of the due date, regardless of any grace period. Although the government restructured its foreign currency debt after Hurricane Ivan destroyed much of the island in 2004, the debt burden remained high and has continued to grow. Before this default, which we believe will depress the economy further, we had projected real GDP per capita growth at just over 1% in 2013 and net government debt at 80% of GDP at year-end 2012. Liquidity pressures are reflected in the government's recent wage arrears as well as the missed debt service payments to official bilateral creditors and the default on the foreign currency bond. The government's difficulty in servicing its U.S. dollar debt and paying public-sector wages may presage servicing risks to its Eastern Caribbean dollar-denominated bond, as well as its Eastern Caribbean dollar-denominated treasury bills. The local currency bond was also part of the 2005 debt restructuring. Accordingly, we have lowered the long-term local currency rating to 'CCC+' with a negative outlook and the short-term local currency rating to 'C'. Once the government cures its foreign currency debt default, we will assign forward-looking foreign currency ratings. We will comment on the likely foreign currency ratings as the government's liquidity situation and future debt payment plans become clear. Outlook We could raise our local currency rating on Grenada if the government's liquidity pressures ease within the coming months. Conversely, if the government's liquidity pressures intensify, the rating could come under additional pressures. Related Criteria And Research

-- Grenada, Sept. 28, 2012

-- Standard & Poor's Ratings Definitions, June 22, 2012

-- Caribbean Debt Is On The Rise, May 22, 2012

-- Sovereign Government Rating Methodology and Assumptions, June 30, 2011

-- General Criteria: Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Dec. 23, 2010 Ratings List Downgraded

To From Grenada Sovereign Credit Rating Foreign Currency SD/SD B-/Stable/B Local Currency CCC+/Negative/C B-/Stable/B Senior Unsecured CCC+ B- Senior Unsecured D B- Ratings Affirmed Grenada Transfer & Convertibility Assessment BBB- Senior Unsecured Recovery Rating 4 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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