Today, some financial pundits tout Peru as one of Latin America’s sovereign bond darlings with a growing economy, stable currency, low inflation and strong credit ratings from the so-called “Big Three” rating agencies. However, that narrative conveniently ignores Peru’s defaulted agrarian reform bond debt. In fact, Fitch, Moody’s and Standard & Poor’s are complicit in Peru’s ongoing default and cover-up, turning a blind eye due to their own conflicts of interest.
Two credit rating agencies—Egan-Jones Ratings Company and HR Ratings—have assigned a default rating to Peru’s agrarian reform bonds. Egan-Jones rated the bonds a “D,” and HR Ratings rated them “HR D (G).” However, despite repeated requests from investors, Fitch, Moody’s and Standard & Poor’s have all refused to rate the bonds. They provided the following explanations in a 2016 Financial Times article entitled “Big rating agencies steer clear of Peru’s defaulted debt”:
Standard & Poor’s said the agrarian reform bonds are “contingent liabilities” but “official documentation and information on the terms and conditions for these bonds has not been established. Without such information, we are not in a position to rate these bonds in accordance with our policies and procedures.”
Fitch said the credit rating agency “was not comfortable rating these bonds because there was insufficient information to conduct credit analysis to our standards. Among other things, the bonds are decades old with an uncertain notional amount given the issuing currency no longer exists.”
Moody’s said the agrarian reform bonds aren’t “ratable in a manner that is consistent with rated government bonds.”
In truth, Fitch, Moody’s and Standard & Poor’s have failed to seek all the necessary information to accurately account for the agrarian reform bond debt in their credit ratings for Peru. During a Congressional hearing in 2016, then-U.S. Rep. Michael Fitzpatrick (R-PA) expressed concern about the agencies’ refusal to rate the bonds and intimated they may be covering for themselves.
“I’m concerned that they’re deciding what bonds are going to rate and what bonds are not going to rate because if they had rated these land bonds that were issued a couple of decades ago and found out they’re all in default, that would affect all of the other ratings they’ve issued,” Fitzpatrick said, according to the Financial Times article.
