By Richard Francis
& Erich Arispe
NEW YORK -- Fitch Ratings has downgraded Venezuela's Long-Term Foreign Currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'C' and affirmed the Long-Term Local Currency IDR at 'CC'. The Long-Term IDRs do not have a Rating Outlook. Fitch has also affirmed the Short-Term Foreign and Local Currency IDRs at 'C' and the Country Ceiling at 'CC'. KEY RATING DRIVERS
The downgrade of Venezuela's LTFC IDR to 'RD' from 'C' reflects the failure of bondholders to receive overdue interest payments on Venezuela's sovereign bonds maturing Oct. 13, 2019 and Oct. 13, 2024 by the end of the 30-day grace period that ended on Nov. 13, 2017. Fitch has downgraded the 2019 and 2024 bonds to 'D' and affirmed the 'C' ratings on Venezuela's other long-term senior unsecured foreign currency debt. All long-term senior unsecured foreign currency debt issue ratings are being withdrawn following the default.
At the same time, Fitch has affirmed Venezuela's 'CC' Long-Term Local Currency IDR as the sovereign has not explicitly announced its intention to restructure local currency debt. The 'CC' rating reflects the continued deep macroeconomic imbalances in Venezuela and its very high levels of fiscal vulnerability.SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
In accordance with its published rating criteria, Fitch's sovereign rating committee decided not to adopt the score indicated by the SRM as the starting point for its analysis because overdue interest payments on the sovereign's debt were not received by bondholders within the relevant grace periods. Consequently, Fitch decided to downgrade the Long-Term Foreign Currency IDR to 'RD'.
Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within the criteria that are not fully quantifiable and/or not fully reflected in the SRM.RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to a positive rating action:
If the sovereign is able to re-establish a track record of timely and predictable payment of its commercial debt obligations, thereby normalising its relationship with its creditors, a positive rating action could occur.
Fitch has taken the following rating actions:
--Long-Term Foreign-Currency IDR downgraded to 'RD';
--Long-Term Local-Currency IDR affirmed at 'CC';
--Short-Term Foreign-Currency IDR affirmed at 'C';
--Short-Term Local-Currency IDR affirmed at 'C';
--Country Ceiling affirmed at 'CC';
--Issue ratings on long-term senior unsecured foreign-currency bonds due Oct. 13, 2019 and Oct. 13, 2024 downgraded to 'D' and withdrawn;
--All other issue ratings on long-term senior unsecured foreign-currency bonds affirmed at 'C' and withdrawn.