Fitch Downgrades El Salvador to CCC Weeks Before Bitcoin Bond Issue

Ratings bureau Fitch has downgraded El Salvador’s semipermanent overseas currency issuer default standing (IDR) to CCC from B- weeks earlier the state starts issuing its bitcoin bond.

• The downgrade reflects “heightened hazard stemming from accrued reliance connected short-term debt, constricted scope for further section marketplace financing, uncertain entree to further multilateral backing and outer marketplace financing fixed precocious borrowing costs,” Fitch said successful a study connected Wednesday.

• The Central American federation faces adjacent to $1.2 cardinal successful outer indebtedness amortizations successful 2023, with $800 cardinal owed successful January, Fitch noted. Fitch besides said that the state faces a financing spread of $1.2 cardinal successful 2022, which volition emergence to $2.5 cardinal successful 2023.

• “There is simply a precocious grade of uncertainty surrounding different sources of outer financing, specified arsenic further multilateral funding, fixed doubts surrounding an IMF program, arsenic good arsenic the capableness to contented bitcoin-backed bonds," the standing bureau said, referring to the International Monetary Fund.

• El Salvador’s bitcoin-denominated Volcano Bonds connection a 6.5% coupon, compared with the 13% benchmark 10-year output connected El Salvador’s outstanding authorities bonds.

• Analysts antecedently told CoinDesk that the bonds are efficaciously a elephantine agelong connected bitcoin alternatively than an look of assurance successful the fiscal prudence of President Nayib Bukele’s government.

• “Anyone buying this bitcoin-backed enslaved is betting connected the cryptocurrency successful a precise large way, ignoring the recognition marketplace presently signaling that El Salvador is precise overmuch facing a distressed-debt situation,” Marc Ostwald, main economist and planetary strategist astatine ADM Investor Services International (ADMISI), antecedently told CoinDesk.

• At the aforesaid time, proponents of the bond program, specified arsenic Samson Mow, the laminitis of Blockstream, the institution that developed the bond, said that bitcoin is simply a mode to disintermediate the sovereign indebtedness marketplace and springiness El Salvador entree to cheaper capital.

• Bukele had previously tweeted, colorfully, that helium doesn't attraction astir the opinions of ratings agencies, renaming the state 'El Hodlador' successful a meme.

CORRECTED (Feb. 10, 6:55 UTC): Corrects 2nd slug to accidental "Central American" federation not "South American."