Fitch assigns BB Negative to Ghana’s partially guaranteed $1b Eurobonds

Fitch Ratings has assigned a final BB Negative to Ghana’s recently issued $1 billion partially guaranteed notes.

The notes form part of Ghana’s budget financing and debt management strategy for 2015, and are being used solely for refinancing existing debt, it says.

Ghana initially announced it was issuing $1.5 billion bonds but shelved it and instead issued $1 billion. The bonds have a $400 million partial credit guarantee provided by the International Development Association (IDA). The guarantee is for scheduled debt service repayments of up to 40 per cent of the original principal.

According to Fitch, it conducted the analysis using its Criteria for Evaluating Third-Party Partial Credit Guarantees, which focus on potential recovery levels, arguing that while the IDA partial credit guarantee can be used to cover debt service payments, reducing the bonds’ potential for default, it believes the primary benefit of the guarantee is to increase the possible recovery in the event of issuer default.

“Fitch believes the partial credit guarantee-protected issue will have a higher likelihood of recovery than other unsecured bonds of Ghana,” the agency said.

It further indicates that the credit guarantee provides enhanced recovery to the guaranteed bond relative to other unsecured creditors.

“When considering the structure and the fact that the guarantee cannot be accelerated, Fitch expects the total recovery on the partial credit guarantee notes to be at the upper end of the ‘RR3’ category (51%-70% recovery), above the normal unsecured recovery rate band ‘RR4’ of 31%-50%, which is typically assumed for Fitch-rated entities,” it said.

By Emmanuel K. Dogbevi