S&P Global Ratings has warned that the ongoing restructuring of government-guaranteed SriLankan Airlines bonds could face complications from “holdout creditors.”
The warning comes despite S&P’s recent upgrade of Sri Lanka’s foreign currency sovereign credit rating to CCC+ with a stable outlook on September 19.
The upgrade was a direct result of Sri Lanka’s progress in restructuring its remaining commercial debt, following a successful exchange of most of its Eurobonds in December 2024.
However, negotiations on the SriLankan Airlines debt began earlier this year, with an offer from the airline and government that was rejected by a committee of bondholders in early August.
The bonds have been trading above their original value, at around 105 cents to the dollar, which reflects investor confidence in receiving full payment.
Bondholders have already taken an activist stance, demanding full payment and reportedly threatening to liquidate the airline through legal action.
The bonds’ sovereign guarantee also lacks a collective action clause, which typically aggregates them with other restructured bonds.
Despite the potential for complications, S&P stated that it believes the situation is “unlikely to disrupt or unwind” the broader debt restructuring process.
The ratings agency highlighted that the country’s creditworthiness is supported by a strong economic recovery, rapid fiscal reforms, and an accumulation of foreign exchange reserves, all of which are supported by an ongoing IMF programme.
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