Moody's Cuts Iceland Credit Rating on Doubts About Aid
April 6, 2010
By BLOOMBERG NEWS
nytimes.com
Iceland’s credit rating outlook was lowered at Moody’s Investors Services after talks aimed at resolving a depositor dispute with Britain and the Netherlands stalled, putting into question an international bailout.
Moody’s cut its outlook on Iceland’s Baa3 rating, one level above junk, to negative from stable, the rating agency said Tuesday. The outlooks on the Baa2 foreign currency bond ceiling and Baa3 foreign currency deposit ceiling were also changed to negative from stable, Moody’s said.
“The negotiations with the U.K. and Netherlands over Iceland’s reimbursement of Icesave depositors may yet yield a more favorable outcome for Iceland’s public finances compared with the previous agreement,” a Moody’s senior analyst, Kenneth Orchard, said in the statement. “Still, the level of uncertainty generated by such protracted discussions is harmful to short-term economic and financial prospects.”
The government of Prime Minister Johanna Sigurdardottir has to date been unable to enter an accord with Britain and the Netherlands on how to compensate the two countries for depositor losses stemming from the failure of Landsbanki Islands in October 2008.
Iceland needs to pay back $5.3 billion, or about 45 percent of last year’s economic output, to cover the losses. Failure to strike a deal has left in limbo the country’s $4.6 billion International Monetary Fund-led loan.
“While there are no immediate payment concerns, Moody’s notes that the stalled negotiations have created some risk that the government may not be able to re-finance its December 2011 and May 2012 Eurobonds in the international capital markets,” Mr. Orchard said. “The central bank is projected to have sufficient resources to repay the issues when they mature and, in fact, the central bank has been actively buying the issues in the secondary market. However, there is some doubt whether the size of the buffer that would exist following repayments would be consistent with an investment grade sovereign rating.”
Iceland had international reserves of 480.1 billion kronur, or $3.7 billion, at the end of February, according to central bank data.
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