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STANDARD
and Poor’s (S&P) has given the country’s debt-exchange
warrants a recovery rating of “3” to indicate a
50-percent to 70-percent chance of principal recovery in
the likelihood the state defaults on its
foreign-currency obligations.
The
rating reaffirmed a prior rating given to a separate set
of warrants the national government issued in February.
“At the
same time, Standard & Poor’s affirmed its ‘BB-’
long-term foreign currency and issue level ratings, its
‘BB+’ long-term local currency rating, and its ‘B’
short-term foreign and local currency sovereign ratings
on the Philippines,” the ratings firm said in a report
posted from
Frankfurt,
Germany.
In the
debt exchange, each $1,000 worth of Philippine IOU
entitles a bondholder one warrant—a paper that permits a
bondholder to convert his dollar-denominated exposure
into local currency bonds.
Of the
$10 billion worth of bonds under the debt-exchange
transaction, $2.25 billion were paired with warrants.
“These
warrants refer to eligible foreign-currency bonds
maturing between 2017 and 2032, amounting to a face
value of $10 billion. They follow an initial issue in
February 2008 of warrants with a notional amount of $2
billion referring to eligible foreign-currency bonds
with a face value of $11 billion, with tenors up to 10
years,” the ratings agency said in its report.
In case
of a default, the warrants grant the right but not the
obligation to exchange the foreign-currency bond against
a peso bond at an exchange rate prevailing at the time
of the default.
“We do
not believe that the issuance of these debt-exchange
warrants, in their current volume, provides an incentive
for the government to offer different terms on default
on eligible foreign-currency bonds that are not paired
with a warrant versus ineligible foreign-currency
government bonds,” said Christian Esters, a credit
analyst of S&P’s.
“Should
issuance of debt-exchange warrants increase to more
significant levels, however, Standard & Poor’s would
consider that the foreign-currency recovery prospects
could be harmed, particularly on those eligible bonds
that are not paired with a warrant,” Esters added.
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