Wednesday, 17 December 2008

CAF Becomes Ecuador Default's First Casualty in Capital Markets

CAF (Corporacion Andina de Fomento) had its rating outlook revised down to negative from stable by Standard and Poor's. The CAF's ratings are A+, considered as investment-grade. 

In a short note issued only a few minutes ago,  S&P revised the outlook ``because the credit risk embedded in CAF's portfolio rose sharply following Ecuador's decision to default on its bonded debt.'' CAF is the largest multilateral bank in the region, and it extends long-term credit to South American nations. A downgrade on the CAF's A+ rating could come if Ecuador decides not to honour its liabilities with the Caracas-based lender.  Another downgrade to one of CAF's large borrowers in Latin America may also trigger a similar move (a downgrade.) Usually, when rating agencies lower their rating outlook on a certain borrower, a move can come within three to six months. 

This won't be the last announcement of its kind by rating agencies. I wonder what will be the position of Fitch, S&P and Moody's towards Venezuela's exposure to Ecuador. They must pronounce on the matter soon.  

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