Brazil Cut To Junk By All Three Ratings Agencies After Moody’s Joins The Fray
S&P had already thrown the country into the junk bin and just six days after our warning, Fitch followed suit.
Between the country’s seemingly intractable political crisis and worsening public finances, the outlook is exceptionally dire and just moments ago, Moody’s cut Brazil to junk as well.
- MOODY’S DOWNGRADES BRAZIL’S ISSUER, BOND RATINGS TO Ba2 W/ A
- BRAZIL’S ISSUER & BOND RATINGS CUT TO Ba2 BY MOODY’S
- DETERIORATING DEBT METRICS WILL RESULT IN A MATERIALLY WEAKER CREDIT PROFILE IN THE COMING YEARS
Watch the BRL and the Bovespa. Things likely won’t be pretty.
Below, find the rationale.
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From Moody’s
Moody’s downgrades Brazil’s issuer and bond ratings to Ba2 with a negative outlook
The downgrade was driven by
- The prospect of further deterioration in Brazil’s debt metrics in a low growth environment, with the government’s debt likely to exceed 80% of GDP within three years; and
- The challenging political dynamics, which will continue to complicate the authorities’ fiscal consolidation efforts and delay structural reforms.
The negative outlook reflects the view that risks are skewed toward an even slower consolidation and recovery, or further shocks emerging, which creates uncertainty over the magnitude of deterioration of Brazil’s debt profile over the rating horizon.
RATIONALE FOR THE DOWNGRADE
Brazil’s credit metrics have deteriorated materially since the Baa3 rating with a stable outlook was assigned in August 2015. That deterioration is expected to continue over the coming three years, given the scale of the shock to the Brazilian economy, the lack of progress made by the government in achieving its fiscal and economic reform objectives and the political dynamics expected to persist over that period.
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