Jamaica credit rating downgraded by Fitch and Standard & Poor’s

Standard & Poor’s (S&P) and Fitch have each downgraded Jamaica’s credit rating following the country’s announcement of a debt exchange offer on Monday night.

Fitch downgraded Jamaica credit rating by one notch further into highly speculative territory, while Standard & Poor’s lowered the country’s rating to “selective default” from its prior rating of B-minus.

Jamaica has asked bondholders to exchange about US$9.1 billion in domestic debt, which entails extension of maturities and reduction in coupons for the affected debt instruments. The proposed exchange implies an adverse change in the terms of government domestic debt, Fitch said.

When the exchange is completed, Fitch will lower Jamaica’s rating to “restricted default.” The government plans to close the exchange on February 21. The ratings will be raised out of default when Fitch determines that the exchange has been successful.

Standard & Poor’s said the debt exchange is considered a default for two reasons: one, that the offer implies that “investors will receive less value than promised as per the original securities,” and two, that the firm views the offer as “distressed rather than opportunistic because the issuer does not intend to fulfill its original obligations.”

Jamaica last undertook a debt exchange offer in January 2010, when Standard & Poor’s also lowered its credit rating to “selective default.”