Standard & Poor’s Corp. joined Fitch Ratings on Monday in lifting Ireland’s sovereign debt rating outlook to stable, after Dublin struck a bank debt deal that improved its chances of exiting its bailout program by the end of 2013.
S&P raised its outlook on Ireland’s BBB-plus rating to stable from negative, leaving Moody’s as the only major rating agency with a downbeat outlook on Irish government bonds.
Dublin struck a long-awaited deal with the European Central Bank last week allowing it to convert promissory notes into long-term bonds, effectively giving it far longer to repay debts it ran up in rescuing the Irish banking system.
“The exchange of promissory notes, which the government had provided to Irish Bank Resolution Corporation, for long-dated government bonds, should reduce the government’s debt-servicing costs and lower refinancing risk,” S&P said in a statement.
“We believe the success of the exchange 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.”
S&P, which expedited Ireland’s path towards a November 2010 bailout with a ratings cut three months earlier, said it could lower its outlook again if Ireland failed to comply with its bailout conditions or raise enough cash to meet its funding need, and if growth slows amid a weaker external environment.
Alternatively it said it could consider raising the rating if the government sustains its fiscal strategy or can sell its sizable holdings in the almost fully state-owned banking sector, both of which would help reduce its still-high public debt.
Fitch rewarded Ireland for fiscal and funding progress much praised among fellow euro zone states by raising its outlook to stable from negative in November. It rates Ireland at BBB-plus, which, like S&P, leaves it three notches above junk status.
Fitch said last week that Dublin’s debt deal was positive, easing medium-term fiscal pressure, but that the same risks remained as when it raised its outlook, notably around a weak growth outlook.
Prime Minister Enda Kenny hailed last week’s deal, which sent Irish borrowing costs down to pre-crisis levels, as an “historic step.”
Moody’s, the only main rating agency to have downgraded the country to non-investment grade, has also kept its negative outlook on Ireland, reflecting its more pessimistic assessment of the euro zone.
The head of the country’s debt agency, which has already begun its gradual return to long-term debt markets, last month complained that Moody’s Ba1 rating was “depressingly low.”
Analysts saw S&P’s move as supportive for the Irish debt agency’s plans to return to the market with a 10-year benchmark issue in the coming weeks and said it would put pressure on Moody’s to justify its stance.
“It makes Moody’s rating on Ireland look even more unreal and bizarre in a lot of ways. It’s very difficult to justify their outlook unless you have a completely different take on the world in general,” said Owen Callan, a Dublin-based bond dealer at Danske Bank.