Feb 14, 2023, 11:44 am
Overview
• National carrier SriLankan Airlines (SLA) has defaulted on a coupon for its 2024 U.S. dollar-denominated bond.
• The government of Sri Lanka, as guarantor, has also failed to make the coupon payment, upon the expiry of the 30-day grace period beginning Dec. 25, 2022.
• This default follows an external debt moratorium announced by the government in April 2022.
• We therefore lowered the long-term issue rating on the bond to 'D' (default) from 'CC'. At the same time, we affirmed the other ratings on Sri Lanka, including the 'SD' long-term foreign currency and 'CCC-' long-term local currency sovereign credit ratings.
• The outlook on the long-term local currency sovereign credit rating is negative, reflecting a high risk to commercial debt repayments over the next 12 months.
On Feb. 13, 2023, S&P Global Ratings lowered its long-term issue rating on SriLankan Airlines' foreign currency-denominated bond maturing June 25, 2024, to 'D' (default) from 'CC'.
At the same time, S&P affirmed the other ratings on Sri Lanka, including the 'SD' long-term foreign currency and 'CCC-' long-term local currency sovereign credit ratings. The outlook on the long-term local currency rating is negative.
Outlook
Our long-term foreign currency rating on Sri Lanka is 'SD' (selective default). S&P do not assign outlooks to 'SD' ratings because they express a condition and not a forward-looking opinion of default probability.
The negative outlook on the long-term local currency rating reflects a high risk to commercial debt repayments over the next 12 months in the context of Sri Lanka's economic, external, and fiscal pressures.
Downside scenario
S&P could lower the long-term local currency ratings on Sri Lanka if there are indications of nonpayment or restructuring of Sri Lankan rupee-denominated obligations.
Upside scenario
S&P could revise the outlook to stable or raise the long-term local currency sovereign credit rating if we perceive that the likelihood of the government's local currency debt being excluded from any debt restructuring has increased. This could be the case if, for example, the government receives significant donor funding, which gives it some time to implement immediate and transformative reforms.
S&P could raise our long-term foreign currency sovereign credit rating upon completion of the government's bond restructuring. The rating would reflect Sri Lanka's creditworthiness post-restructuring.
Our post-restructuring ratings tend to be in the 'CCC' or low 'B' categories, depending on the sovereign's new debt structure and capacity to support that debt
Rationale
S&P lowered the issue ratings on the SLA 2024 bond to 'D' from 'CC' because both the issuer and government of Sri Lanka, as guarantor, missed a coupon payment of about US$6.1 million. This payment was originally due December 2022, and the grace period expired in January 2023.
The bond, along with other international sovereign bonds (ISBs) that the government issued, will remain at 'D', pending the conclusion of current debt negotiations.
Negotiations for the SLA bond may be separate from those on the government's other ISBs. Our rating on all of these is 'D'.