New York, May 24, 2006 -- Moody's Investors Service said that a new approach to setting its foreign-currency country ceilings for bonds has resulted in upgraded ceilings for 70 countries. Country ceilings already carrying Moody's top rating of Aaa were unaffected by the new methodology and no country ceiling was downgraded as a result of the revised approach.
Neither government bond ratings nor foreign-currency ceilings for bank deposits are affected by this action.
The rating agency also published a special report explaining the way its new methodology reflects the risk that a foreign-currency government bond default would be accompanied by a moratorium on external foreign-currency payments.
"Under our new country ceiling methodology, we no longer automatically assume that a foreign-currency bond default by a government would be accompanied by a foreign-currency payment moratorium affecting most issuers domiciled within its borders," said Vincent Truglia, managing director of Moody's Sovereign Risk Unit and author of the report.
He said the agency's thinking in favor of greater flexibility in the application of country ceilings has reflected the deepening of the international capital markets since the 1990s and the avoidance by most governments in recent years of a generalized moratorium in the face of a government foreign-currency bond default.
In assessing the probability of a moratorium in the event of an external payments crisis, Truglia said that Moody's assesses the extent to which the local economy is integrated into the world economy, and the extent to which the government would perceive a moratorium as more costly than other policy alternatives.
Moody's also weighs the likelihood of a government socializing the cost of a crisis. "This takes place when the government substitutes its credit for the credit of the local companies, sparing domestic firms from the risk of having to face a court challenge abroad," said Truglia.
The ceilings of the vast majority of countries rated by Moody's have been upgraded by at least one notch. In some cases, such as the newer members of the European Union, the upgrades are of four and five notches, bringing those countries into closer alignment with fellow E.U. members.
Countries that have the U.S. dollar as their legal currency and countries with foreign-currency bond ceilings already at their local-currency guidelines were not affected by the change in methodology because moratorium risk assessments do not change the risk profiles embedded in those existing ceilings.
Prompted by the revised ceilings, Moody's said, the foreign-currency issuer ratings of non-government issuers may also be upgraded.
"While piercing the sovereign ceiling has been possible since 2001, foreign-currency issuer ratings for issuer and corporate family ratings are effectively constrained by the new ceiling and only specific bond ratings will be able to pierce," said Moody's' Truglia. "This is because we expect that, even if a moratorium is put in place, certain securities are still likely to be exempt."
As example, he cited Argentina's 2001moratorium in which certain issuers and types of securities were nevertheless exempted, permitting them to make foreign--currency debt payments.
Moody's report on its new methodology is titled, "Revised Foreign Currency Ceilings to Better Reflect Reduced Risk of a Payments Moratorium in Wake of Government Default." It is available on www.moodys.com
Press releases regarding other issuers affected by Moody's revised methodology will follow.
Moody's foreign-currency country ceilings for bonds, both long- (LT) and short-term (ST), prime and not prime (NP), now include:
Argentina: LT, B2 from B3, (stable outlook); ST, NP;.
Australia: LT, confirmed at Aaa (stable outlook); ST, P-1
Austria: see Eurozone
Bahamas: LT, Aa1 from A3 (stable outlook); ST, P-1
Bahrain: LT, A2 from Baa1(stable outlook); ST, P-1
Barbados: LT, A1 from Baa2 (stable outlook); ST, P-1
Belgium: see Eurozone
Belize: LT, Caa1from Caa3 (stable outlook); ST, NP
Bermuda: LT, Aaa from Aa1(stable outlook); ST, P-1
Bolivia: LT, B2 from B3 (stable outlook); ST, NP
Bosnia Herzegovina: LT, Ba3 from B2 (stable outlook); ST, NP
Botswana: LT, Aa3 from A2 (stable outlook); ST, P-1
Brazil: LT, Ba2 from Ba3 (positive outlook); ST, NP
Bulgaria: LT, A1 from Baa3 (stable outlook); ST, P-1
Canada: LT, confirmed at Aaa (stable outlook); ST, P-1
Cayman Islands: LT, Aaa from Aa3 (stable outlook); P-1
Chile: LT, A2 from Baa1 (rating under review); ST, P-1
China: LT, confirmed at A2 (stable outlook); ST, P-1
Colombia: LT, Ba1 from Ba2 (stable outlook); ST, NP
Costa Rica: LT, Baa3 from Ba1 (negative outlook); ST, P-3
Croatia: LT, A1 from Baa3 (stable outlook); ST, P-1
Cuba: confirmed at Caa1 (stable outlook); ST, NP
Cyprus: LT, Aa1 from A2 (stable outlook); ST, P-1
Czech Republic: LT, Aa1 from A1 (positive outlook); ST, P-1
Denmark: LT, confirmed at Aaa (stable outlook); ST, P-1
Dominican Republic: LT, B1 from B3 (stable outlook); ST, NP
Ecuador: LT, confirmed at Caa1 (positive outlook); ST, NP
Egypt: LT, Baa2 from Ba1 (stable outlook); ST, P-2
El Salvador: confirmed at Baa3 (stable outlook); ST, P-3
Estonia: LT, Aa1 from A1 (positive outlook); ST, P-1
Eurozone: LT, confirmed at Aaa (stable outlook); ST, P-1
Fiji Islands: LT, Ba1 from Ba2 (stable outlook); ST, NP
Finland: see Eurozone
France: see Eurozone
Germany: see Eurozone
Greece: see Eurozone
Guatemala: LT, Ba1 from Ba2 (stable outlook); ST, NP
Honduras: LT, Ba3 from B2 (stable outlook); ST, NP
Hong Kong: LT, Aa1 from A1 (stable outlook); ST, P-1
Hungary: LT, Aa1 from A1 (stable outlook); ST, P-1
Iceland: LT, confirmed at Aaa (stable outlook); ST, P-1
India: LT, Baa2 from Baa3 (stable outlook); ST, P-2
Indonesia: LT, Ba3 from B1 (stable outlook); ST, NP
Ireland: see Eurozone
Israel: LT, Aa1 from A2 (stable outlook); ST, P-1
Italy: see Eurozone
Jamaica: LT, Ba3 from B1 (stable outlook); ST, NP
Japan: LT, confirmed at Aaa (stable outlook); ST, P-1
Jordan: LT, Baa3 from Ba2 (negative outlook); ST, P-3
Kazakhstan: LT, Baa1 from Baa3 (rating under review); ST, P-2
Korea: LT, A1 from A3 (positive outlook); ST, P-1
Kuwait: LT, Aa3 from A2 (positive outlook); ST, P-1
Latvia: LT, Aa1 from A2 (stable outlook); ST, P-1
Lebanon: LT, B2 from B3 (stable outlook); ST, NP
Liechtenstein: LT, confirmed at Aaa (stable outlook); ST, P-1
Lithuania: LT, Aa1 from A3 (stable outlook); ST, P-1
Luxembourg: see Eurozone
Macao: LT, Aa1 from A1 (stable outlook); ST, P-1
Malaysia: LT, confirmed at A3 (stable outlook); ST, P-1
Malta: LT, Aa1 from A3 (stable outlook); ST, P-1
Mauritius: LT, Baa1 from Baa2 (negative outlook); ST, P-2
Mexico: LT, A1 from Baa1 (stable outlook); ST, P-1
Moldova: LT, B3 from Caa1 (stable outlook); ST, NP
Mongolia: LT, Ba2 from B1 (stable outlook); ST, NP
Morocco: LT, Baa2 from Ba1 (stable outlook); ST, P-2
Netherlands: see Eurozone
New Zealand: LT, confirmed at Aaa (stable outlook); ST, P-1
Nicaragua: LT, B3 from Caa1 (stable outlook); ST, NP
Norway: LT, confirmed at Aaa (stable outlook); ST, P-1
Oman: LT, A2 from Baa1 (stable outlook); ST, P-1
Pakistan: LT, Ba3 from B2 (stable outlook); ST, NP
Panama: LT, confirmed at Baa1 (stable outlook); ST, P-2
Papua New Guinea: LT, Ba2 from B1 (stable outlook); ST, NP
Paraguay: LT, B3 from Caa1 (stable outlook); ST, NP
Peru: LT, Ba2 from Ba3 (stable outlook); ST, NP
Philippines: LT, Ba3 from B1 (negative outlook); ST, NP
Poland: LT, Aa1 from A2 (stable outlook); ST, P-1
Portugal: see Eurozone
Qatar: LT, Aa2 from A1 (stable outlook); ST, P-1
Romania: LT, A2 from Ba1 (positive outlook); ST, P-1
Russia: LT, A2 from Baa2 (stable outlook); ST, P-1
Saudi Arabia: LT, A1 from A3 (stable outlook); ST, P-1
Singapore: LT, confirmed at Aaa (stable outlook); ST, P-1
Slovakia: LT, Aa1 from A2 (stable outlook); ST, P-1
Slovenia: LT, Aaa from Aa3 (stable outlook); ST, P-1
South Africa: LT, A2 from Baa1 (stable outlook); ST, P-1
Spain: see Eurozone
Suriname: LT, Ba2 from B1 (stable outlook); ST, NP
Sweden: LT, confirmed at Aaa (stable outlook); ST, P-1
Switzerland: LT, confirmed at Aaa (stable outlook); ST, P-1
Taiwan: LT, confirmed at Aa3 (stable outlook); ST, P-1
Thailand: LT, A3 from Baa1 (stable outlook); ST, P-2
Trinidad and Tobago: LT, A2 from Baa2 (stable outlook); ST, P-1
Tunisia: LT, A3 from Baa2 (stable outlook); ST, P-2
Turkey: LT, Ba1 from Ba3 (stable outlook); ST, NP
Turkmenistan: LT, B1 from B2 (stable outlook); ST, NP
Ukraine: LT, Ba3 from B1 (stable outlook); ST, NP
United Arab Emirates: LT, Aa2 from A1 (stable outlook); ST, P-1
United Kingdom: LT, confirmed at Aaa (stable outlook); ST, P-1
United States: LT, confirmed at Aaa (stable outlook); ST, P-1
Uruguay: LT, B1 from B3 (stable outlook); ST, NP
Venezuela: LT, B1 from B2 (stable outlook); ST, NP
Vietnam: LT, Ba2 from Ba3 (stable outlook); ST, NP
LT= Long term
ST= Short term
P = Prime
NP= Not prime
-Ends-
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Vincent J. Truglia
Managing Director
Sovereign Risk Unit
Moody's Investors Service
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Senior Vice President
Sovereign Risk Unit
Moody's France S.A.
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