Jamaica companies being downgraded over government debt swap deal

This follows announcements made last week by international insurance rating agency A.M Best that it had downgraded Sagicor Life of Jamaica and placed the entire Sagicor Life group under review due to its exposure to Jamaican government securities in its portfolios. The Caribbean’s only credit rating agency, CariCRIS also announced last week that it had placed a whole host of publicly rated entities in Jamaica under a ratings watch. Along with Sagicor’s Jamaica subsidiaries, CariCRIS also identified the National Commercial Bank of Jamaica, NCB Capital Markets Ltd, and the Development Bank of Jamaica Ltd as being under review for creditworthiness in light of the exchange.

According to Fitch, it has downgraded Clarendon Alumina Production’s long-term foreign currency Issuer Default Rating (IDR) to 'CCC' from 'B-'; its local currency long-term IDR to 'CCC' from 'B-'; and its US $200 million 8.5% unsecured notes issue due November 2021 to 'CCC/RR4' from 'B-/RR4'. However, it has removed the company’s negative outlook.

Clarendon Alumina is the holding company for the government of Jamaica's 45% ownership in a joint venture with a subsidiary of Alcoa called Jamalco, which is a bauxite mining and alumina refining operation in Jamaica. Fitch explained that the company’s ratings are directly linked to those of Jamaica. The unsecured notes are supported by an explicit unconditional and irrevocable guarantee by the Government of Jamaica for the timely payment of interest and principal.

Therefore, the downgrade of the company’s ratings to 'CCC' follow the downgrade of Jamaica's international senior unsecured debt instruments to 'CCC' from 'B-'and long-term FC and LC IDR's to 'C' from 'B-' on Feb. 12, 2013.

Fitch said the company’s ratings mirror the ratings for Jamaica's international bonds because an unsuccessful debt exchange could result in increased financing pressures for the sovereign.

Jamaica's ratings were downgraded after the proposed debt exchange announced by the government involving approximately J$860 billion in both foreign and local currency domestic debt. Fitch considers that Jamaica's proposed domestic debt exchange will, if completed, constitute a default. Hence, the sovereign's FC and LC IDRs will be lowered to 'Restricted Default' (RD) upon completion of the exchange.

Fitch said Jamaica's ratings would be raised out of default shortly if it determined that the exchange has been successful, which is typically measured by a minimum participation rate of 90%. The new rating will be consistent with Jamaica's prospective credit profile and debt structure. This offered some hope for Clarendon Alumina’s as Fitch reiterated that the company’s ratings would mirror any action taken on Jamaica’s ratings, in accordance with its 100% government ownership.

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Date Posted

February 25 2013