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Fitch downgrades SriLankan Airlines bonds to ‘CC’

24 Dec 2021

Fitch Ratings has downgraded the rating on SriLankan Airlines Ltd.’s (SLA) $ 175 million government-guaranteed 7% unsecured bonds due 25 June 2024 to “CC”, from “CCC”. The rating action follows the downgrade of Sri Lanka’s Long-Term Foreign-Currency Issuer Default Ratings to “CC” from “CCC”. SriLankan Airlines’ bonds are rated at the same level as its parent, the state of Sri Lanka, due to the unconditional and irrevocable guarantee provided by the state. Currently, the Sri Lankan Government holds 99.71% of the airline through direct and indirect holdings. Fitch has rated SLA’s US dollar bonds at the same level as the sovereign due to the unconditional and irrevocable guarantee provided by the Government. The rating is not derived from the issuer’s standalone credit profile and thus is not comparable with that of industry peers. The agency noted that the below-listed factors could, individually or collectively, lead to positive rating action/upgrade: – An upgrade of the sovereign rating Factors that could, individually or collectively, lead to negative rating action/downgrade: – A downgrade of the sovereign rating For the sovereign rating of Sri Lanka, the following sensitivities were outlined by Fitch in the Rating Action Commentary of 17 December 2021. Factors that could, individually or collectively, lead to positive rating action/upgrade: – External finances: Improved external liquidity, supported by higher non-debt inflows or lower external sovereign refinancing risk from an enhanced liability profile that allows for smooth servicing of liabilities – Public finances: Implementation of a credible medium-term fiscal consolidation strategy that supports a sustained decline in the general government debt/GDP ratio, increasing financing options and reducing the probability of default – Structural: Improved policy coherence and credibility, leading to more sustainable public and external finances and a reduction in the risk of debt distress Factors that could, individually or collectively, lead to negative rating action/downgrade: – Failure to service bonded debt obligations within grace periods stipulated in relevant documentation, or unilateral declaration of a debt moratorium – Launch of a formal debt renegotiation process by authorities or the start of a process that Fitch deems to constitute a default or default-like event


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