Moody’s Investors Service downgraded El Salvador’s credit rating by two notchesand warned that investors in the country’s bonds risk big losses.
(Panama approves law to regulate cryptocurrencies).
The agency cut the nation’s long-term external debt rating to “Caa3” from “Caa1,” arguing “a higher probability of a credit event: restructuring, distressed exchange or default.” “The downgrade incorporates Moody’s expectation of large material losses for investors before the next two bond redemptions,” Moody’s said in a statement.
El Salvador has an $800 million bond payment due in January 2023, followed by another due in January 2025. The downgrade “is largely due to the lack of a credible financing plan, a factor that increases the credit risks stemming from restricted market access due to distressed yields on El Salvador’s external debt,” Moody’s said.
(Latin America advances in the regulation of cryptocurrencies).
The nation’s foreign dollar bond spreads have widened to more than 2,200 basis points above those of the United States, according to Moody’s, reflecting a high level of distress. The government’s reliance on short-term domestic debt increases credit risks, Moody’s said.
El Salvador is the first country in the world to make bitcoin a legal tender and President Nayib Bukele announced that he plans to issue a $1 billion bitcoin-backed bond. His government has delayed plans to sell the bond and Finance Minister Alejandro Zelaya said that the cryptocurrency price drop was affecting investor demand. Moody’s maintained the negative outlook on the rating.
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