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S&P improves outlook for Irish credit rating after prom note deal

Exchanging promissory notes for long-term bonds “should reduce the government’s debt-servicing costs and lower refinancing risk.”
Feb 11th 2013, 6:46 PM 7,830 56

CREDIT RATINGS AGENCY Standard & Poor’s has improved its outlook for Ireland’s credit worthiness, following last week’s deal to scrap the promissory notes in favour of long-term government bonds.

The agency this evening said it was revising its credit outlook, which previously stood at ‘negative’, to ‘stable’.

While the move does not amount to an upgrade, with Ireland’s credit rating still at BBB+, it does mean that Ireland is no longer in danger of having its rating lowered any further.

This evening the agency said its move “reflects our expectation that the exchange of promissory notes for longer-term government bonds significantly reduces the Irish government’s debt-servicing costs and refinancing risk, and supports medium-term fiscal consolidation”.

“By improving the government’s debt-maturity profile, the transaction also increases the prospects of Ireland leaving the EU/IMF bailout program as planned at the end of 2013,” it added.

While S&P said the liquidation of IBRC may have a poor short-term effect on the government’s balance – with the one-off costs of shutting it down likely to make a small dent on the Budget – the savings from not having to borrow to make annual repayments note would reduce the deficit in 2014 and 2015 by about 0.6 per cent of GDP.

However, unlike Eurostat, S&P includes NAMA bonds – which are being issued to IBRC in exchange for its assets – as part of Ireland’s national debts. This means that because the Irish government’s debt burden is growing in the eyes of S&P, an increase to the credit rating was not considered.

“The stable outlook balances our view of Ireland’s progress toward rebalancing the economy and consolidating its fiscal position against the prevailing downside risks we see to its financial sector stability and its already-highly-leveraged balance sheet, as well as what we view as the uncertain growth prospects for its domestic economy,” S&P said.

Read: Consumer spending power to stabilise this year, improve in 2014

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Gavan Reilly

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