S&P flags ‘weak’ framework for creditor recovery in Philippines
Weak creditor rights dragged the Philippines into S&P Global Ratings’ “Group C” jurisdiction ranking, a classification that signals low recovery prospects and high uncertainty in insolvency proceedings.
However, S&P said the assessment did not affect any of the country’s existing ratings, including its recently affirmed BBB+ sovereign credit rating with a positive outlook.
“The Group C jurisdiction ranking assessment on the Philippines reflects the country’s overall weak legal framework for creditors. We assessed the Philippines’ creditor-friendliness as weak and the rule-of-law risk as high,” S&P said.
The ranking is the lowest among S&P’s three categories. It suggests that the Philippines’ insolvency system does not separate different types of creditors and makes it hard to predict how much they might recover.
“This means we will assess subordination of debt for our issue ratings on Philippines entities’ borrowings. Notching for issue ratings will be based on our assessment of the priority of claims in a debtor’s capital structure,” the major credit watcher added.
Insolvency refers to a situation where liabilities exceed assets, making a company or individual unable to pay debts.
S&P noted that the Philippines’ main insolvency law, the Financial Rehabilitation and Insolvency Act of 2010, has not been consistently enforced, leaving uncertainty over how effectively creditors can enforce their claims.
Creditor-friendliness in the Philippines was also rated inconclusive by S&P, due to insufficient evidence on whether creditors can reliably recover their debts under the law.
Further weighing on the country’s ranking is its limited track record of creditor recovery, with most lenders only recovering less than 30 percent of what they are owed.
Even with adherence to the United Nations Commission on International Trade Law’s Model Law on Cross-Border Insolvency, S&P said this is not enough to substantially improve the Philippines’ ranking.
