Rating Action Commentary
ֳ Rates Dominican Republic's USD 2029 and 2033 Notes 'BB-'
Thu 17 Feb, 2022 - 2:36 PM ET
ֳ - New York - 17 Feb 2022: ֳ has assigned 'BB-' ratings to Dominican Republic's USD1.782 billion notes maturing in February 2029 and to its USD1.782 billion notes maturing in February 2033. The 2029 notes have a coupon of 5.5%, and the 2033 notes have a coupon of 6.00%. Both instruments contain call options for redemption.
From USD3.564 billion gross proceeds, a portion, USD1.264 billion, will be used to redeem the tendered and accepted portions of Dominican Republic's 6.6% bonds due 2024, 5.875% amortizing bonds due 2024, and 7% U.S. dollar-denominated notes due July 2023. The remainder of the net proceeds will be used for the partial financing of the 2022 budget and other general purposes of the government.
Key Rating Drivers
The bond rating is in line with Dominican Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BB-'.
On Dec. 8, 2021, ֳ affirmed Dominican Republic's Long-Term Foreign and Local-Currency IDRs at 'BB-'.
The following ESG issues represent Key Rating Drivers for the bond:
ESG - Governance: Dominican Republic has an ESG Relevance Score (RS) of '5[+]' and '5', respectively, for Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality, and Control of Corruption. These scores reflect the high weight that the Worldwide Governance Indicators (WGI) have in ֳ's proprietary Sovereign Rating Model. Dominican Republic has a medium WGI ranking at the 45.2 percentile, reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.
Other Key Rating Drivers can be found in the issuer rating action commentary dated Dec. 8, 2021.
The rating on bonds is sensitive to any changes in the Long-Term Foreign-Currency IDR, which has the following rating sensitivities (as per the aforementioned issuer rating action commentary).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--Deterioration of the government debt/GDP and interest/revenues ratios, for example, through the loosening of fiscal policy, the re-emergence of material financial losses of the public electric utilities, or lower GDP growth rates than expected;
--An external shock that widens the current account deficit or the emergence of tougher external financing conditions or private capital outflows, which result in a sustained fall in international reserves.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Implementation of policy measures that strengthen the government's budget flexibility, fiscal policy credibility, and the balance sheet of the government and/or central bank;
--Entrenchment of the central bank's inflation-targeting regime resulting in greater monetary policy credibility and effectiveness.
ֳ's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. ֳ'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 ֳ's criteria that are not fully quantifiable and/or not fully reflected in the SRM.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.
Date of Relevant Committee
07 December 2021
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The ESG profile is in line with that of the Dominican Republic.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
- Country Ceiling Model, v1.7.2 (1)
- Debt Dynamics Model, v1.3.1 (1)
- Macro-Prudential Indicator Model, v1.5.0 (1)
- Sovereign Rating Model, v3.12.2 (1)
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Dominican Republic | EU Endorsed, UK Endorsed |