Research Update: Guatemala 'BB-' Long-Term Foreign Currency Rating Placed On CreditWatch Negative Following Dispute On Bond Payment

A U.S. court has issued a restraining notice to Bank of New York Mellon, blocking the bank from disbursing a coupon payment due on Guatemala's 2026 Eurobond. The court action derives from a commercial dispute between the Guatemalan government and an electric distribution company called TECO Guatemala Holdings (TECO). The coupon payment on the 2026 Eurobond has a 30-day grace period ending Dec. 3, 2020. We believe Guatemala has the funds to pay TECO and the willingness to make the payment on its Eurobond. We are placing our 'BB-' long-term foreign currency and 'BB' long-term local currency sovereign credit ratings on Guatemala on CreditWatch negative to reflect the risk of a downgrade if the legal actions impair Guatemala's ability to

...Key rating factors Score Explanation Institutional assessment 4 Political legacy appears in still-weak public institutions, uncertain checks and balances, corruption, and inadequate public services. The rule of law and enforcement of contracts continues to be a challenge in the country. Economic assessment 6 Based on GDP per capita (US$) and growth trends as per selected indicators in table 1. Weighted average real GDP per capita trend growth over a 10-year period is at 1.2%, which is well below sovereigns in the same GDP category. External assessment 3 Based on narrow net external debt and gross external financing needs/(CAR + usable reserves) as per selected indicators in table 1....

Research Update