Standard and Poor’s has become the first ratings agency to improve their outlook on Irish debt on the back of last week’s promissory note deal.
In an early sign that last week’s replacement of the promissory notes used to bailout bank creditors with longer term Government bonds will improve the State’s solvency, the credit rating agency changed its Ireland outlook from “negative” to “stable” this evening.
It did not, however, change the ratings band within which it classifies the Irish State. That remains at “BBB+”, seven notches below the top triple A rating, but marginally above speculative or “junk” status.
The agency said it would consider raising its rating “if the Government sustains its fiscal strategy [and/or] can sell its sizable equity position in the domestic banking system to non-resident investors”.
S&P is one of the world’s three largest rating agencies, along with Moody's and Fitch. The ratings these agencies give to financial assets has a strong influence on the rate of interest issuers must offer.
This evening the agency said “In our opinion, the exchange of promissory notes for long-dated Irish government bonds, should reduce the government's debt-servicing costs and lower refinancing risk.”
In a statement, the agency said that last week’s deal “increases the likelihood of a full return by Ireland to private financing and, therefore, of Ireland successfully exiting the EU/IMF bailout program, at the end of 2013”.
Despite last week’s credit positive development, S&P warned that it could yet downgrade Ireland again. It cited any failure to comply with the terms of the EU-IMF bailout or if the Government “were not able to access the capital markets sufficiently to meet its 2013 funding needs”.