S&P: State of Rio de Janeiro Downgraded To 'SD' After Inter-American Development Bank Didn't Receive Debt Service Payment
OREANDA-NEWS. S&P Global Ratings said today that it lowered its global scale 'CCC-' and national scale 'brCCC-' ratings on the state of Rio de Janeiro (Rio) to SD. At the same time, we removed both ratings from CreditWatch with negative implications, where we placed them on Sept. 12, 2016. On Sept. 9, 2016, the state of Rio de Janeiro missed a $46 million debt service payment to the Inter-American Development Bank (IADB). The IADB loan is guaranteed by the sovereign, and we expect it to fulfill the debt service payment in the following weeks. However, since the contract of IADB and Rio doesn't incorporate a stated grace period, according to our criteria, when the contract doesn't incorporate a stated grace period (see: "Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings," published Oct. 24, 2013), timely payment means no later than five business days after the due date for payment (either by the state or by the federal government as guarantor). As the payment wasn't made within five business days after the due date, we consider this to be a default. S&P defines selective default ('SD') when an obligor has failed to pay one or more of its financial obligations (rated or unrated) when it came due. An 'SD' rating is assigned when S&P believes that the obligor has selectively defaulted on a specific issue or class of obligations, but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. In addition to IADB, the state of Rio de Janeiro has payments coming due in September to other multilateral lending agencies and to Credit Suisse. The state would cure its selective default once the missed debt service is paid and if it is current to other creditors. If the payment is made to the IADB, but Rio has outstanding past-due debt service payments, as per our criteria defines, to other creditors, then the ratings on the state would remain at 'SD'. The rating that the state would receive upon emerging from default will depend on our assessment of its willingness and capacity to continue repaying debt and of its overall credit profile.