Bangkok--8 Dec--Standard & Poor's Ratings
Standard & Poor's Ratings Services is requesting comments from market participants on its criteria for introducing recovery ratings on sovereign foreign currency senior unsecured commercial debt.
PROPOSAL
We plan to apply the suggested sovereign recovery methodology to speculative-grade issuers. Recovery ratings will be assigned based on fundamental issuer recovery analysis developed by Standard & Poor's, and will be expressed in net present value terms using our proposed global recovery rating scale.
The recovery rating methodology will start by identifying the likely sovereign default scenario. This will set the relevant parameters for the subsequent recovery analysis, as it envisages the economic, fiscal, and political conditions that would prevail following default.
The recovery analysis will then proceed by focusing on three key, interrelated features:
-- First, we will address the sovereign's payment ability following the default scenario by simulating the postdefault debt levels and comparing these with empirically derived postrestructuring sovereign debt profiles. The recovery ability analysis also assesses the potential for GDP contraction and exchange rate depreciation under the default scenario, and the sovereign's likely fiscal and external flexibility.
-- Second, we will focus on the sovereign's anticipated payment willingness after default. This is likely to be affected by the sovereign's own default and restructuring history, as well as recent restructuring precedents of other sovereign defaulters. Payment willingness will also depend on the importance, for both the government and the domestic economy, of access to global goods and capital markets, and on postdefault political priorities.
-- Third, we will take into account potential features of subordination or enhancement. Our analysis will examine bilateral debtor relations, the likely impact of debt owed to official creditors on the claims of commercial creditors, as well as potential third-party financial support.
DETAILS
The full report, titled "Request For Comment: Introduction Of Sovereign Recovery Ratings," was published yesterday on RatingsDirect and is also available at standardandpoors.com.
RESPONSE DEADLINE
Comments on this proposal may be sent through Jan. 22, 2007, to [email protected] or by contacting any of the individuals listed below. Alternatively, please send written comments to:
Standard & Poor's
Attention: Sovereign Ratings — Recovery RFC
20 Canada Square
London
E14 5LH
Media Contact:
David Wargin, New York (212) 438-1179, [email protected]
Analyst Contacts:
David T Beers, London (44) 20-7176-7101
Christian Esters, CFA, Frankfurt (49) 69-33-999-242
Tim Reid, London (44) 20-7176-7116
Marie Cavanaugh, New York (1) 212-438-7343
Ping Chew, Singapore (65) 6239-6345