FITCH Ratings has downgraded Cyprus’ long-term local currency Issuer Default Rating (IDR) to “Restricted Default” from “CCC”, following confirmation from the Cypriot government that the exchange of a number of domestic law government bonds has been completed.
According to Fitch, the exchange constitutes a distressed debt exchange (DDE). It is added that Fitch has downgraded only the affected domestic bonds to “D” from “CCC”, and affirmed the rest at “CCC”.
It is added moreover that under the exchange, domestic law bonds of €1 billion, that are due to expire within the EU-IMF programme period, will be replaced by new bonds with the same coupon rates but with the maturity dates of the new securities extended to outside the programme period.
This transaction constitutes a DDE under Fitch’s criteria, as the maturity extension at existing coupon rates represents a material reduction in terms for bondholders, the announcement notes.
The settlement date for Cypriot-law exchanged bonds is Monday 1 July. Shortly after completion of the debt exchange and the issue of new securities, Fitch will raise Cyprus’ LC IDR out of ‘RD’ and assign ratings consistent with the agency’s forward-looking assessment of Cyprus’ credit profile following the distressed debt exchange.
The post- exchange LC IDR and securities’ ratings are likely to be low speculative grade.