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S&P downgrades Ecuador on higher likelihood of default

S&P Global Ratings on March 25 downgraded Ecuador's long- and short-term sovereign credit ratings to CCC-/C from B-/B and subsequently placed the ratings on CreditWatch with negative implications.

The ratings reflect the S&P Global Ratings' view that "a default, distressed exchange or redemption appears inevitable within the next six months," given the absence of favorable conditions to support the payment of its debt obligations.

The Ecuadorian government recently said it will need to utilize the 30-day grace period to pay $200 million in coupon payments on bonds due 2022, 2025 and 2030. The country is facing large budgetary financing needs that are aggravated by the sharp decline in oil prices and the adverse global economic impact of the coronavirus outbreak.

Political risks for the country also abound as congress members called to temporarily suspend external debt repayment or even possibly write off debt due to the health emergency it is facing.

"Our ratings on Ecuador are constrained by elevated financing needs, external vulnerabilities, weak institutions, relatively low wealth levels, and lack of monetary and exchange rate flexibility," S&P Global Ratings noted.

Meanwhile, the CreditWatch negative placement is based on a 1-in-2 possibility that Ecuador could be downgraded to SD in the next weeks if the country will not service the interest payments on its bonds before the end of the grace period. A proposed debt exchange, which would constitute a distressed debt exchange under S&P Global Ratings' criteria, could also trigger a downgrade, the rating agency said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.