July 22, 2016 / 9:46 PM / 3 years ago

Fitch Applies Criteria Changes to Global Sovereign Ratings

(The following statement was released by the rating agency) LONDON, July 22 (Fitch) Fitch Ratings has applied its revised Sovereign Criteria dated 18 July 2016 to conduct a global review of the notching relationship between sovereign Long-Term Local Currency (LTLC) and Long-Term Foreign Currency (LTFC) Issuer Default Ratings (IDRs), review existing Short-Term Foreign Currency (STFC) IDRs and assign new Short-Term Local Currency (STLC) IDRs. In an approved variation from criteria, the review did not include LTFC IDRs. Rating actions as a result of the review are detailed in the attached spreadsheet. Fitch has downgraded 23 LTLC IDRs, upgraded eight STFC IDRs and downgraded one STFC IDR. All other LTLC IDRs and STFC IDRs have been affirmed. The issue ratings on Long-term senior unsecured Local Currency (LC) bonds have been affirmed or downgraded based on corresponding IDR rating actions. The issue ratings on Short-term Foreign Currency (FC) bonds have been affirmed based on corresponding IDR rating actions. Fitch's revised Sovereign Criteria cites two key factors that may support an upward notching of the LTLC relative to the LTFC IDR. These factors are: (i) strong public finance fundamentals relative to external finance fundamentals; and (ii) previous preferential treatment, if any, of LC creditors relative to FC creditors. This revised guidance on notching reflects Fitch's assessment that credit risk profiles of sovereigns in LC and FC debt are typically aligned, a view that is partly informed by recent empirical evidence as concerns sovereign defaults. In reviewing the global portfolio, Fitch determined that neither of the key factors was supportive of notching the LTLC ratings of 23 sovereigns that previously had notching uplifts. As a result, LTLC IDRs for these 23 sovereigns were downgraded. Chile (LTLC IDR AA-), New Zealand (LTLC IDR AA+) and Peru (LTLC IDR A-) are now the only sovereigns with LTLC ratings notched up from their LTFC ratings, all by one notch. Fitch's revised Sovereign Criteria also introduced new guidelines to 'mapping' from the Long-term (LT) rating scale to the Short-term (ST) rating scale, where an option of ST ratings exists. Specifically, Fitch's published LT/ST rating correspondence table allows options at 'A+' ('F1' or 'F1+'), 'A-' ('F2' or 'F1') and 'BBB' ('F3' or 'F2'). For STFC IDRs, Fitch will choose the higher of the two options if the sovereign has a Reserve Currency Flexibility (RCF) score of greater than zero, or an International Liquidity Ratio (ILR) of greater than 100%. For STLC IDRs, Fitch will always choose the higher of the two options. The RCF score is based on the share of currencies in global official foreign exchange reserves, as reported by the International Monetary Fund, and currently includes the US dollar, euro, Japanese yen, British pound, Canadian dollar, Australian dollar and Swiss franc. The ILR ratio is calculated by Fitch to express a country's liquid external assets as a percentage of its liquid external liabilities. In reviewing the global portfolio, Fitch upgraded eight and downgraded one sovereign STFC IDRs where an option of STFC ratings existed based on RCF scores or ILRs. RATING SENSITIVITIES The main factors that could lead to changes in LTLC IDRs are as follows: - Changes in LTFC IDRs - Changes in the key factors or supporting factors for notching up of LTLC IDRs from LTFC IDRs The main factors that could lead to changes in STFC IDRs or STLC IDRs are as follows: - Changes in LTFC IDRs (for STFC IDRs) - Changes in LTLC IDRs (for STLC IDRs) Sovereign-specific LTFC IDR sensitivities are contained in Fitch's published Rating Action Commentaries announcing ratings decisions. Contact: James McCormack Managing Director, Global Head of Sovereigns +44 20 3530 1286 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Global Sovereign Ratings Review - Rating Action Report here Applicable Criteria Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1009379 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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