News Column

Fitch Downgrades Bermuda's Ratings to 'A+'; Outlook Stable

May 30, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded Bermuda's long-term foreign and local currency Issuer Default Ratings (IDRs) to 'A+' from 'AA-'. Fitch has also downgraded the issue ratings on Bermuda's senior unsecured foreign and local currency bonds to 'A+' from 'AA-'. The Rating Outlooks on the long-term IDRs has been revised to Stable from Negative. In addition, Fitch has downgraded Bermuda's Country Ceiling to 'AA' from 'AA+' and short-term foreign currency IDR to 'F1' from 'F1+'.

KEY RATING DRIVERS

Bermuda's rating downgrade and Stable Outlook reflect the following rating drivers:

The economy contracted in 2013 for the fifth consecutive year while total employment shrank further. The government's initiatives to improve business conditions, avoid further job losses and strengthen fiscal accounts have resulted in improved business confidence and positive investment prospects in the tourism sector. Some economic data in 2014 suggest that the Bermudian economy could be stabilizing, although there is still uncertainty about medium-term growth prospects. Fitch foresees GDP growth to be zero in 2014 followed a by 1% expansion in 2015.

Bermuda's fiscal position is weak compared to peers in the 'A' rating category. The fiscal deficit in 2013 reached 6.2% of GDP. The government's fiscal consolidation strategy intends to reverse the trajectory of government deficits and the debt burden over the medium term. Fitch believes that such strategy faces implementation risks as it partially relies on economic growth and the ability to cut current expenditures without further undermining economic activity and employment.

Bermuda's gross public debt is expect to continue rising and reach 43.3% of GDP by 2016, although without exceeding the current statutory debt ceiling of USD2.5 billion (net from sinking fund balances, equivalent to 45% of GDP). Bermuda does not require financing until 2015 thanks to pre-financing operations in 2013. Bermuda's debt burden, both in gross and net terms is below the 'A' median. However, these ratios are higher when measured against revenues, highlighting Bermuda's narrow revenue base. Bermuda's weak tax-raising capacity and expenditure rigidities limit fiscal flexibility.

Bermuda's ratings continue to be supported by Bermuda's wealth (the fifth-highest GDP per capita among Fitch-rated sovereigns), its high savings rate relative to its 'A' peers, large and persistent current account surpluses and a strong net external creditor position. Bermuda maintains its competitive advantage as a domicile for reinsurance and financial services companies due to its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the U.S. and skilled human capital.

The revision of the outlook to Stable reflects Fitch's expectation that economic growth will gain pace and the authorities' commitment to a reduction in the fiscal deficit will be sustained in 2014-2016. A pickup in international business, tourism, retail and real estate activity support the improvement in growth prospects. In addition, the fiscal consolidation strategy, if successfully implemented, could decelerate the rate of public debt accumulation.

RATING SENSITIVITIES

The main risk factors that, individually or collectively, could trigger a rating action are:

Positive:

--Improved employment and investment prospects leading to a sustained faster growth trajectory;

--A successful implementation of the fiscal consolidation strategy that results in decreasing budget deficits and public debt burden;

Negative:

--Failure to successfully implement a fiscal consolidation strategy that undermines confidence in the ability of the authorities to contain the increase in debt burden;

--No material pick-up in economic growth resulting in further job losses and adversely affecting the trajectory of fiscal accounts;

--Regulatory changes that hurt international companies operating in Bermuda.

KEY ASSUMPTIONS

The ratings and Outlooks are sensitive to a number of assumptions.

--The growth, fiscal and external forecasts assume that Bermuda maintains its attractiveness as an insurance and re-insurance jurisdiction.

--Fitch assumes that economic growth in the U.S. will reach 2.8% in 2014 and 3.1% in 2015, providing some support to Bermuda's tourism sector.

--Current account surpluses will provide support to the pegged exchange rate regime in 2014-2016.

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'Sovereign Rating Criteria' (Aug. 13, 2012);

--'Country Ceilings' (Aug. 9, 2013).

Applicable Criteria and Related Research:

Sovereign Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685737

Country Ceilings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715618

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=832344

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

or

Primary Analyst

Santiago Mosquera, +1-212-908-0271

Director

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 1004

or

Secondary Analyst

Cesar Arias, +1-212-908-0358

Associate Director

or

Committee Chairperson

Shelly Shetty, +1-212-908-0324

Senior Director

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters