On September 15th, as Salvadorans celebrated independence day, the El Salvador Fitch rating got
downgraded to CC from CCC. Tight fiscal and external liquidity and high financing needs are some of the reasons for Fitch’s downgrade.
This is the second downgrade from Fitch of El Salvador’s rating in 2022. In January 2022,
Fitch downgraded the rating to CCC from B-. Fitch cited concerns over the country’s ability to pay its debt and the adoption of bitcoin as legal tender.
|September 15th, 2022||CC||N/A|
|February 9th, 2022||CCC||N/A|
|April 20th, 2020||B-||Negative|
|October 6th, 2017||B-||Stable|
|April 10th, 2017||CCC||N/A|
|February 1st, 2017||B||Negative|
|July 9th, 2015||B+||Stable|
The downgrade comes less than a week after El Salvador launched its offer to repurchase the 2023 and 2025 bonds, an operation that, for Fitch, does not alter the risk of default.
The government of El Salvador recently announced a voluntary cash buyback of USD360 million for its 2023 and 2025 external bonds at below par, which will likely further weaken its already strained liquidity position.” Fitch Rating.
El Salvador specified a purchase price of $910 for the bonds maturing in 2023 and a $540 price for the bonds maturing in 2025. The bond repurchase offer will be available from September 12th to the 20th. It is subject to a total repurchase amount of US$360 million.
Initially, the Ministry of Finance had proposed to buy back US$560 million of debt. However, when the bond repurchase was officially launched, only $360 million was proposed.
Fitch’s new rating reflects their view that El Salvador could probably default on its upcoming 2023 Eurobond payment. According to the rating institution, “El Salvador’s liquidity situation is dire ahead of the January 2023 Eurobond payment.”
Fitch’s stated that El Salvador’s buy-back option “will further weaken its already tense liquidity position.” The re-purchase of debt does not alter the country’s probability of default.
The Salvadoran Minister of Finance, Alejandro Zelaya, has reiterated that the country can pay its financial commitments in the coming years.
Totally [We will pay]. I have always been very clear when talking about this, it is not the Government of President Bukele that fell into default; it was the Governments of the FMLN.” Alejandro Zelaya, Minister of Finance.