22.07.2016

On 26 May 2016, the international Fitch Ratings Agency released updated Sovereign Rating Criteria. As a result, in July 2016, the Agency revised its assessments of the debt of all states in its portfolio, with the decision about Bulgaria's reassessment having been taken on 19 July.

Based on the updated criteria, a reassessment has been made in three major directions: assignment of STLC IDRs, review of existing STFC IDRs and review of the notching relationship between existing LTLC IDRs and Long-Term Foreign Currency (LTFC) IDRs.

As a result of these changes, Fitch made its assessment of Bulgaria's Long-Term Local Currency ratings equal to that of the Long-Term Foreign Currency ratings, downgrading it from ‘BBB' to ‘BBB-', with a stable outlook again. The Short-Term Foreign Currency (STFC) IDR has been affirmed at 'F3' and a new Short-Term Local Currency (STLC) IDR of 'F3' has been assigned.  The Long-Term Foreign Currency IDR, which was affirmed for Bulgaria on 3 June at BBB- (stable outlook), has not been included in the reassessment as the changes in the methodology do not affect the criteria for its assignment.

According to the methodology used between August 2014 and May 2016 to determine a sovereign credit rating, the assessment of local currency debt was usually the same as or a notch higher than the foreign currency debt one, although, under certain circumstances, the difference could be even more than a notch. With the new criteria Fitch sets a stronger link between the credit risk relating to local and foreign sovereign debt. The Agency also refers to some empirical observations of states with ratings assigned by it that have stopped servicing their local currency debt and foreign currency debt, respectively, due to insolvency. According to the revised methodology, the assignment of a higher local currency debt rating than the foreign currency one should be relatively rare.

The Agency mentions that a review of the Long-Term Local Currency ratings is possible in case of a change in the Long-Term Foreign Currency ratings or in the factors used to assess a higher Long-Term Local Currency rating notch than the Foreign Currency one. As to the short-term ratings, the key influence is attributed to the relevant long-term ratings.

Fitch adds that the rating sensitivities outlined in the previous Rating Action Commentary dated 3 June 2016 are unchanged in respect of the LTFC IDR. 

You can read the full text of Fitch's press release here.