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Moody's hits Venezuela with ratings downgrade, raises outlook to stable

Moody's lowered Venezuela's foreign currency and local currency issuer ratings to C from Caa3, saying it expects the oil-producing nation's debt servicing capacity to remain "severely impaired."

Venezuela's foreign and local currency senior unsecured ratings and foreign currency senior secured rating were also downgraded to C from Caa3. The outlook on the ratings was raised to stable from negative.

The rating agency said pending coupon payments due from both the sovereign and its state-owned oil firm PDVSA have surpassed $1.7 billion since November 2017. So far, the Venezuelan government has only made late payments on overdue PDVSA coupons and not on sovereign coupons.

"It is increasingly likely that the government will not be able to meet upcoming principal payments on its market debt," Moody's said.

"Even though the authorities have signaled that they plan to remediate some of the late payments on interest on both PDVSA and sovereign bonds, cash flow pressures from the lower oil production will weigh heavily on their ability to clear all arrears," the rating agency said.

Moody's said the U.S. sanctions imposed on Venezuela will worsen its government's financial constraints and losses to bondholders, which the rating agency projected to be very high, most likely more than 65%.

Additional sanctions following Venezuela's presidential election in May could target the oil sector and further weaken the country's ability to make upcoming payments and clear debt, according to Moody's.

Moody's said it could upgrade the rating if Venezuela's debt restructuring provides enough cash flow that allows debt servicing to resume or if the U.S. pulls back on its sanctions regime.