Fitch Ratings has upgraded the Republic of Colombia's $1 billion partially guaranteed amortizing notes to 'BBB' from 'BBB-'. In conjunction, Fitch has assigned a Stable Outlook to the issuance. The notes are supported by the International Bank for Reconstruction and Development (a unit of the World Bank) rolling guarantee of principal and interest for a one-year period.
Fitch has upgraded the following two issue ratings:
Colombia World Bank Guaranteed Notes
--USD$750 million series 2001 to 'BBB' from 'BBB-';
--USD$250 million series 2001 to 'BBB' from 'BBB-'.
The rating is two notches higher than Fitch's 'BB+' long-term Issuer Default Rating (IDR) on the Republic of Colombia. Consistent with Fitch's criteria on multilaterals in structured finance and partial-credit guarantees, the support provided by the World Bank to the notes helps to mitigate risks associated with both the probability of default and also the severity of loss given default.
Fitch's criteria for the role of multilaterals in structured finance perceives the borrower's willingness to pay a preferred creditor, such as the World Bank, as higher than its willingness to pay its general obligations. In Fitch's view, this particular rolling guarantee product, in conjunction with Colombia's relatively high multilateral debt burden (45% of external debt), limits the ratings uplift benefit.
Separately, Fitch's partial-credit guarantee criteria elaborates on the idea that transactions with partial guarantees will achieve higher recoveries than the general unsecured claims of a particular issuer. These notes benefit from a 12-month rolling guarantee of principal and interest that serves to increase the recovery rate given default. The notes currently have approximately USD$109 million outstanding with a maturity in April of 2011. Given a default, the approximately USD$50 million cash value of the guarantee provides sufficient enhancement for a one notch uplift over the general unsecured rating of the obligor. Combined with a reduction in the probability of default, a one-notch uplift provided by a reduction in loss severity allows the rating on these notes to be two notches higher than the rating on Colombia's general obligations. Colombia's creditworthiness is supported by a record of macroeconomic stability, disciplined fiscal policies and deft liability management. These credit strengths, though, are balanced by comparatively high fiscal and external solvency ratios. Colombia also remains vulnerable to external shocks due to limited trade integration, high commodity dependence, and considerable trade exposure to Venezuela.
For more information, please see Fitch's criteria reports, 'Criteria for the Role of Multilaterals and Sovereign Constraints in Structured Finance', published Dec. 12, 2008 and 'Partial-Credit Guarantees in Emerging Markets -- Severity of Loss or Probability of Default', published May 11, 2007 on the Fitch web site at www.fitchratings.com.
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Contacts:
Fitch Ratings
Mark Salgado, +1-312-368-2080 (Chicago)
Sam Fox,
+1-312-606-2307 (Chicago)
Sandro Scenga, +1-212-908-0278 (Media
Relations, New York)
sandro.scenga@fitchratings.com