New York, June 02, 2022 -- Moody's Investors Service ("Moody's") has assigned a rating of Aaa to the backed senior unsecured proposed bond issuance ("series A" bond) by the Government of The Bahamas (Ba3 negative). The bond is enhanced by a $200 million credit guarantee provided by the Inter-American Development Bank (IADB) for scheduled debt service payments. The IADB's issuer rating is Aaa with a stable outlook.
The assigned Aaa rating is based solely upon the unconditional and irrevocable guarantee of scheduled principal and interest payments provided by the IADB.
Separately, the Government of The Bahamas will issue an additional Eurobond without guarantee ("series B" bond) under the same bond indenture as the bonds issued with the IADB guarantee. Moody's has assigned a Ba3 rating to series B bonds in line with The Bahamas's issuer rating.
The assigned ratings are based on preliminary documentation. Moody's does not anticipate changes in the main conditions that the notes will carry. Should issuance conditions and/or final documentation deviate from the original ones submitted and reviewed by the rating agency, Moody's will assess the impact that these differences may have on the rating and act accordingly.
RATINGS RATIONALE
The Government of The Bahamas plans a bond issuance, which includes a guarantee for one of the issued series. There will be a dual-tranche issuance under a single bond indenture, the proceeds of which will be used for general budgetary purposes, including the refinancing, repurchase or retirement of existing indebtedness and to finance general development in The Bahamas.
The Aaa rating on the series A bonds reflects the credit strengths of the guarantee provided by the IADB and Moody's view that the terms of the guarantee meet our criteria for credit substitution (please refer to Moody's cross-sector rating methodology, Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debt published in May 2017). The guarantee expresses an unconditional and irrevocable commitment to pay due and unpaid scheduled principal and interest on a timely basis.
A key element of achieving credit substitution is timely payment under a guarantee. The guarantee payment is triggered by a demand notice made by the Indenture Trustee, which will occur at least 12 days prior to the scheduled payment date. The IADB will need to make a corresponding payment no later than 11 days after receiving such demand notice from the Indenture Trustee. Moody's considers this timeframe appropriate to ensure timely payment.
The series B bond potentially benefits from the guarantee on the series A bond to the extent there is any residual portion of the guarantee after all payments are made on the series A bond. However, in Moody's view, the potential value of this 'guarantee residual' is insufficient to support any uplift for the series B bonds above The Bahamas issuer rating.
GDP per capita (PPP basis, US$): 33,233 (2020 Actual) (also known as Per Capita Income)
Real GDP growth (% change): -14.5% (2020 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.2% (2020 Actual)
Gen. Gov. Financial Balance/GDP: -7% (2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -24% (2020 Actual) (also known as External Balance)
External debt/GDP: 34.3
Economic resiliency: ba1
Default history: No default events (on bonds or loans) have been recorded since 1983.
On 19 May 2022, a rating committee was called to discuss assigning a rating to the forthcoming bond offering of The Bahamas, Government of, which includes a tranche enhanced by a guarantee provided by the Inter-American Development Bank for scheduled debt service payments. The main points raised during the discussion were: The committee discussed the nature of the obligation and concluded the forthcoming issuance met the elements of credit substitution and would be rated in line with the guarantor's rating. The committee also discussed the other tranche of forthcoming bond offering and concluded the forthcoming issuance would rank pari-passu with all other senior unsecured debt obligations of The Bahamas, Government of.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating on backed senior unsecured bond is Aaa, which is already at the top of our rating scale. An upgrade to a higher rating is therefore not possible.
The Aaa rating is fundamentally linked to the rating of the IADB. Consequently, any change in the rating of the IADB could be expected to translate into a change in the backed senior unsecured bond.
The methodologies used in these ratings were Sovereign Ratings Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/63168, and Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017 and available at https://ratings.moodys.com/api/rmc-documents/75699. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
David Rogovic
VP - Sr Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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