This report does not constitute a rating action.

Since 2020, a rapid increase in government debt levels tied to successive external shocks has pushed sovereigns to undertake debt liability management operations to address upcoming redemptions. While the majority of such transactions are initiated to proactively mitigate future refinancing risks, others may represent a means to circumvent default. Those factors make this an opportune moment to explain our approach to assessing sovereign debt liability management operations and to provide examples of recent exchanges and their rating implications.

S&P Global Ratings assesses debt restructurings as "distressed" and tantamount to default if they meet two conditions. The first is that investors receive less than the originally promised amount. The second is that, in the absence of the debt restructuring, there is a realistic possibility of a conventional default on the debt over the medium term. For more information see "Sovereign Distressed Debt Exchanges And Emergence From Default," April 15, 2025.

Debt liability management exercises are not limited to distressed sovereigns. While recent debt restructurings have largely taken place in lower-rated sovereigns across sub-Saharan Africa, South Asia, and Latin America, many past debt exchanges have also occurred in Europe and other parts of Asia. Opportunistic liability management transactions, which we have not classified as distressed exchanges, are more common in higher-rated sovereigns. For example, we have observed sovereigns undertaking foreign currency debt repurchase operations in investment grade jurisdictions including in Serbia, Oman, and Portugal.

Sovereigns may choose to enter restructuring programs despite sufficient resources to make payments. The greater the amount of government revenue that is needed to repay debt, the more significant the resulting policy trade-offs become. Developing economy authorities understandably prefer to prioritize recurrent and capital expenditure to boost the economy, rather than redirect resources toward repaying debt. For example, Argentina postponed the payment of U.S.-dollar-denominated principal and interest on local-law debt in 2020, citing stressed fiscal budgets and strained resources during the pandemic. This happened despite the country's access to around $42 billion in gross foreign exchange reserves.

At lower rating levels, it is more difficult to ascertain whether investors are exchanging securities on a voluntary basis. Bondholders who consider a sovereign default to be an imminent possibility may feel pressured into accepting an exchange offer because they fear more adverse consequences if they were to decline it. In such a distressed scenario, investors may accept less than the original terms because of the risk that the government would otherwise fail to honor its existing obligations. As such, the voluntary aspect of an offer is largely irrelevant from a credit perspective.

Sovereign Debt Liability Management Exercises

Buybacks

Buybacks are typically undertaken to help term out upcoming maturities. For sovereigns rated 'BB' and above, including Cote d'Ivoire and Dominican Republic, new capital market issuances have historically been accompanied by offers to repurchase existing bonds at about or above par value. At such rating levels, we generally perceive transactions to be opportunistic and akin to proactive liability management. That is because the target bonds typically mature in a few years, the sovereign has access to alternative financing sources or robust reserve coverage, and we view there to be very limited risk that non-participating investors are not repaid on time and in full at the bond's original maturity date.

With some exceptions, buybacks typically target bonds maturing over the long term. Both Kenya and El Salvador have bought-back, at or close to par, their Eurobonds maturing within less than one year. While the single 'B' ratings on both issuers at the time pointed to the potential for underlying liquidity challenges and difficulty accessing international capital markets, we did not classify either debt repurchase operation as "distressed" because we considered that the respective governments would not have defaulted on the individual bonds had creditors chosen not to partake in the exercise.

Table 1

Rationales for table 1: Buybacks

Kenya--not distressed: In February 2024, Kenya made an offer to partially repurchase $1.5 billion of its $2.0 billion Eurobond maturing in June 2024, at par and including payment of accrued interest, while also issuing new bonds in the market. Despite external and fiscal vulnerabilities tied to high debt-service repayments and financing constraints, Kenya maintained strong access to external concessional financing sources at the time of the operation. This was evidenced by the IMF upsizing the country's Extended Credit Facility-Extended Fund Facility program by $938 million and the World Bank pledging up to $1.5 billion. Consequently, we believed the government had sufficient resources to make the payment at maturity.

El Salvador--not distressed: In November 2024, El Salvador offered to repurchase five bonds due between 2027 and 2034, with a total outstanding value of $2.6 billion at slightly above-market prices and close to par values. To finance the transaction, the sovereign issued debt in international markets for $1 billion. In our opinion, El Salvador could have met its debt obligations in the foreseeable future without this transaction, while investors who did not accept the offer maintained the right to receive the full payment amount at each bond's maturity date. The tender offer followed a broad debt reprofiling process that began in 2022, with two external debt repurchases in 2022, a pension debt exchange in 2023, a short-term debt refinancing strategy initiated in 2023, and another two external debt repurchases earlier in 2024.

Turkiye--not distressed: In October 2024, Turkiye repurchased a total of $1.9 billion across four Eurobonds maturing in 2024 and 2025. None of the 2026 dollar bonds were bought back in the tender. Given modest debt to GDP (about 27% of GDP) and a fairly-low average cost of debt, we believed the government would have fulfilled its financial commitments absent this transaction. During the time of the exchange, we raised our sovereign credit rating on Turkiye to 'BB-' from 'B+' supported by the central bank's efforts to stabilize the lira, bring down inflation, rebuild foreign exchange reserves, and de-dollarize the financial system.

Serbia--not distressed: In November 2020, Serbia bought back $900 million of its 2021 Eurobond to reduce the bond's outstanding principal amount at maturity. This marked the country's fourth tender offer on its dollar-denominated bonds in less than two years, following its repurchase of $2.6 billion between June 2019 and November 2020. Despite the short time to maturity, we believed the government remained committed to bringing debt down by preserving fiscal prudence and keeping fiscal risks from the public sector under control. This was evidenced by the downward reduction in net general government debt by 17 percentage points between 2015 and 2019. In addition, given high foreign exchange reserves and cash buffers, we believed the government would have fulfilled its financial commitments absent this transaction.

Oman--not distressed: In June 2022, Oman completed a voluntary debt buyback transaction totaling $701 million of Eurobonds maturing in 2025 and 2032. The government took advantage of favorable oil price dynamics to reduce its debt levels, generate marginal interest savings, and smooth its maturity profile. We believe the government's proactive debt management, along with its access to liquid assets of about 50% of GDP, was opportunistic and helped ease future refinancing needs.

Local currency debt exchanges

We consider the cumulative amount of debt switched over time. Our assessment of an individual debt switch operation takes into account the wider context of the sovereign’s liability management, including the frequency and size of debt exchanged in previous transactions. For example, for Argentina, we classified the February 2025 peso debt offer as a "distressed" exchange after considering the cumulative amount of local currency debt exchanged since March 2024, which amounted to $78 billion (11.6% of GDP) compared to $14.9 billion (1.7% of GDP) under three transactions at the beginning of 2025. While we believe the government could have honored its payments on the March 2025 bonds, continued and ongoing recourse to debt swap operations reflected the sovereign's limited ability to manage its maturity profile and place debt in the local market. A similar approach was taken in the determination of Mozambique’s "distressed" local currency exchange in March 2025, which was the second of multiple switches planned over 2025-2027. While these decisions related to domestic debt switches, the same principal could be applied to foreign currency exchanges, should they occur repeatedly.

The amount of debt exchanged per individual transaction also matters. A debt switch by Congo-Brazzaville under its proposed exchange in October 2024 amounted to half of its regional market CFA franc-denominated debt, or 25% of GDP. Unlike in Argentina, this sizeable one-off transaction suggested that the sovereign may not have been able to service its obligations absent the participation of creditors, and we therefore deemed the transaction to be tantamount to default. Supplementing our analysis was Congo-Brazzaville's low rating, tight liquidity position, low subscription rates for its regional issuances, limited cash buffers, and scarce alternative funding options. The sovereign also has a history of defaulting on foreign currency debt, including in 2016 and 2017.

Beyond pricing, there may be additional incentives for investors to partake in domestic switches . Sovereigns such as South Africa regularly conduct domestic debt swap operations that, publicized well in-advance of the securities' maturity dates, help lengthen tenors, address debt-servicing peaks, and reduce refinancing risks. In such cases, the new instruments are typically offered at higher and market-determined yields compared with the older tendered instruments and may provide additional incentives such a tax relief. For Uganda, rated 'B' at the time of its first three switches over 2021-2023, we considered that the government could have fulfilled its obligations absent the exchanges. Additionally, investors received sufficient compensation to incentivize participation in the switches (bondholders were repaid up to 6% above par on redemptions). That said, the recurrence of such exercises highlighted increasing medium-term fiscal risks associated with rising debt servicing costs, contributing to a downward rating action to 'B-' around the time of the fourth switch at end-2023.

Debt exchanges can support more sustainable debt positions. The public finances of Jamaica became unsustainable in 2010, with government debt at 130% of GDP and interest payments consuming about 60% of government revenues. The government, rated in the 'CCC' range at the time, undertook a debt exchange in 2010 that included local and foreign currency debt issued domestically (representing around 50% of total public debt). The government and the financial community agreed on a debt restructuring plan, which, offering no reduction in face value but lower interest rates and longer maturities, provided fiscal savings of around 4% of GDP. A similar debt exchange was undertaken in 2013. We treated both debt exchanges as "distressed" because we concluded that investors received less value than originally promised, and that the government would not have been able to avoid default without the exchange. That said, both debt exchanges marked the beginning of strong fiscal consolidation in Jamaica, (now rated (BB-/Positive/B)), with government debt falling to 63% of GDP and interest to revenue to 18% in 2024.

Table 2

Rationales for table 2: Local currency debt exchanges

Argentina--distressed: After three peso debt exchanges, announced and executed between January and February 2025, and four similar operations during 2024, we classified Argentina's domestic debt liability management operation in February 2025 as a distressed exchange. This is because the bonds targeted under the exchange were maturing closer and closer to the date of the offer, and the total amount of exchanged local currency debt reached $78 billion since March 2024. In addition, capital account controls limited the investment options of local financial institutions, while local banks already had high exposure to the sovereign. In our view, continued recourse to such debt operations reflected Argentina's limited ability to extend maturities and place debt in the local market.

Congo-Brazzaville--distressed: In October 2024, Congo-Brazzaville announced the implementation of an exchange on about half of its regional market CFA franc-denominated debt. We believed the country's liquidity position was extremely tight at the time, with over 60% of its regional debt maturing before the end of 2026, low subscription rates for its regional issuances, limited cash buffers, and scarce alternative funding options. In addition, the offer extended maturities up to ten years but the coupon and principal on the new bonds were similar to those on the old bonds, implying the exchange's terms were less favorable to investors than the initial issuances.

Sri Lanka--distressed: In September 2023, Sri Lanka confirmed a domestic debt restructuring exercise to support the restoration of its public financial position. At the time, the country's interest burden and local currency debt stock were extremely high, contributing to a default on its foreign currency obligations months earlier. The new notes carried a step-down in interest rate, from 12% through 2025 to 9% thereafter, and an implied extension of maturity with the basket of new maturities. In our view, these changes caused investors to receive less than the original promise on the existing obligations.

Uganda--not distressed: Over 2021-2023, Uganda offered investors the option to convert treasury bonds into higher-yielding, longer-dated bonds, and, to date, it has repaid investors who did not participate in these exchanges. The most recent debt liability management exercise took place in October 2023, which we did not consider to be a distressed restructuring because we believed the government had sufficient resources to repay the obligations. The exchanges were all conducted several quarters in advance, with investors repaid up to 6% above par on redemptions, suggesting that the operations were employed to manage upcoming payments, smooth redemption profiles, and prevent excess liquidity in the banking sector. That said, we think the issuance of higher-cost commercial debt exacerbated debt-service costs and weakened the sovereign's creditworthiness, contributing to a lowering of our sovereign credit rating to 'B-' from 'B' at about the time of the fourth switch.

Angola--not distressed: In August 2022, Angola undertook a liability management exercise to improve its public debt profile. The Banco Nacional de Angola offered to exchange a series of treasury bonds. In total, 32 exchange rate-linked bonds were offered under the operation along with a set of fixed-rate local currency bonds (called of Obrigações do Tesouro Não Reajustáveis, or OTNRs) coming due over 2023 and 2024. All exchange rate-linked bonds and OTNRs were exchanged for OTNRs in local currency and with longer maturities. Investors were offered 3%-4% above par on existing bonds to participate in the transaction. The sharp appreciation in the kwanza ahead of the exchange supported our view that the offer was opportunistic, particularly because the updated terms did not obviously imply investors would receive less than originally promised. The substantial number of holdouts that we expected would still be paid in full and on time also supported this view.

Debt-for-nature swaps

Debt swaps in Bahamas, Barbados, Belize, and Ecuador were conducted below par. The four nations' recent debt-for-nature swaps involving commercial debt met the first condition to be considered "distressed" and tantamount to default, i.e., that investors received less than the original promise. This is because one main objective of these swaps is to secure a repurchase price below the original par value in order to produce debt relief, which, from our point of view, implies that the creditors face a loss. The second main objective--the redirection of the debt service savings, resulting from the repurchase below par, to nature-related investments--is not a mitigating factor, in our determination.

Sovereigns that undertook debt-for-nature switches had weaker fundamentals. For us to qualify a debt repurchase as "distressed", both of our conditions must be met. The second of those dictates that there must be a realistic possibility of a conventional default in the absence of the swap. Barbados and Ecuador both had completed debt restructurings within the prior four years, making their debt service profiles more manageable. Ecuador had just completed its IMF program, which facilitated access to multilateral lending, while Barbados had access to IMF and other official funding. These conditions supported our view that Ecuador and Barbados would have avoided conventional defaults. At the time of the debt swap negotiation in 2021. Belize's U.S. dollar bond (superbond) due 2034 was in default, which made the opportunistic analysis irrelevant. Meanwhile, economic growth in the Bahamas supported the reduction of fiscal deficits and financing needs to levels more consistent with those seen pre-pandemic.

Table 3

Rationales for table 3: Debt-for-nature swaps

Belize--not applicable (N/A): In November 2021, all of Belize's superbonds due 2034 were canceled following settlement of a cash tender offer to purchase the bonds and the redemption of all bonds not tendered. The purchase and the redemption were funded by a loan (the blue bond) provided by a subsidiary of The Nature Conservancy, which included various marine conservation targets. Maturing in 2040, the blue bond structure was signed at a 45% face value reduction to the superbonds, the maturity was extended, and interest rates varied over the maturity of the instrument. At the time of the debt swap negotiation, Belize's superbond was in default, which made the opportunistic analysis irrelevant. That said, the conclusion of the swap led to Belize resuming debt payments, and we raised our sovereign credit rating to 'B-' from 'SD' (selective default).

Ecuador--not distressed: In December 2024, a special-purpose vehicle, Amazon Conservation DAC, launched an offer to purchase four Ecuadorian notes due between 2030 and 2040. According to the offer, Amazon Conservation DAC exchanged the purchased notes for a loan to Ecuador benefiting from a partial guarantee from the Inter-American Development Bank and political risk insurance from the U.S. International Development Finance Corp. While the transaction reduced Ecuador's debt stock by about $700 million, it remained our expectation that the sovereign had sufficient resources to honor its obligations according to the original terms. In our view, Ecuador's debt payments over the coming year were manageable, considering the planned fiscal consolidation and commitment to the IMF program. This marked Ecuador's second debt-for-nature swap: the first operation in May 2023, which we also characterized as opportunistic, involved the repurchase of $1.6 billion in global bonds.

Barbados--not distressed: In September 2022, Barbados repurchased $78 million of its 6.5% notes due 2029 and prepaid the equivalent of $73 million of its series E 8% bonds due 2043 using money received from a loan facility guaranteed by the Inter-American Development Bank and The Nature Conservancy. The interest saved as a result of this transaction was directed toward marine conservation work and the sustainable management of Barbados' marine assets. The price for repurchasing the 2029 notes was determined via a modified Dutch auction. We considered the debt repurchase and prepayment opportunistic given that we believe the government could have fulfilled its financial commitments absent this transaction. The purpose of the exercise was to direct funds to conservation efforts for Barbados' marine environment and to promote a sustainable blue economy.

Bahamas--not distressed: In November 2024, the Bahamas completed the repurchase of $300 million of external commercial debt, financed by Standard Chartered's $300 million loan backed by a $200 million partial credit guarantee from the Inter-American Development Bank as well as credit enhancements from Builders Vision and AXA XL. The favorable terms of the new loan translated into an estimated $124 million in interest saved over 15 years, which supported conservation efforts. We believed the government could have fulfilled its financial commitments absent this transaction, on the back of its fiscal consolidation efforts and growth prospects that contained the debt burden. We viewed this transaction as in line with the Bahamas' efforts to capitalize on its blue carbon economy and at the same time strengthen its debt liability management.

*Cote d’Ivoire--not distressed: Note: this is a debt-for-development swap. In December 2024, Cote d’Ivoire used the proceeds of a €400 million loan facility from an international commercial bank to buyback the equivalent amount of external commercial loans maturing over the next five years. The loan benefited from a partial guarantee from the International Bank for Reconstruction and Development. Given the lower interest rate and longer tenor of the loan, the transaction helped generate savings of about €60 million in net present value terms and freed up about €330 million in public funds over the following five years. The government plans to allocate the resulting debt service savings to education programs monitored by the World Bank. At the 'BB' rating level, we viewed the transaction as opportunistic and expect the government will continue to proactively manage its debt to smooth its amortization profile.

Foreign currency debt exchanges

Our sovereign ratings address the capacity and willingness of an issuer to pay interest and principal on commercial debt. Consequently, debt exchanges that involve only intragovernmental (fully public sector entities), bilateral, or multilateral debt are not considered "distressed." For example, we did not consider Angola's agreement in 2024, to lower monthly debt payments to China Development Bank, its largest Chinese creditor, as a default because we consider the lender to be official. We had a similar case with Ethiopia’s restructuring of a railway loan from majority state-owned China Exim in 2018, which we viewed to be bilateral debt. That said, the accumulation of official external arrears or restructuring of non-commercial obligations could point to broader liquidity or solvency pressures and hence may imply downward rating actions.

The time taken to emerge from default has become increasingly lengthy due to greater complexity. The amount of time it takes to resolve defaults through resuming repayments, restructuring, or distressed exchanges depends on several factors. These include the depth and severity of political, fiscal, and external challenges, alongside the heterogeneity of creditors involved in the process. Since the 1980s, the duration of sovereigns remaining in selective default has increased: Ethiopia, Sri Lanka, and Zambia are all yet to restructure their debt obligations under the G-20 Common Framework, while Ghana emerged from selective default, in May 2025, after suspending Eurobond payments, in December 2022. We observe that the long-term macroeconomic consequences are more severe for sovereigns that remain in default for multiple years, increasing the probability of further defaults down the line.

Table 4

Rationales for table 4: Foreign currency debt exchanges

Ukraine--distressed: Under pressure from a combined balance of payments, exchange rate, and growth shock, the Ukrainian government announced in April 2015 its intention to restructure its Eurobonds issued before February 2014. In parallel, the country's Cabinet of Ministers adopted a resolution to suspend scheduled interest and principal payments on central government debt, including Eurobonds, which fell due from Sept. 23, 2015 through Dec. 1, 2015. As a result of the debt exchange, Ukraine restructured about $15 billion of foreign public debt, with a 20% reduction in the principal. This reduced Ukraine’s gross financing needs by $8.5 billion over the next four years. We considered that the exchange offer satisfied both conditions of a distressed debt restructuring due to the sovereign’s stressed position and the net present value loss borne by investors.

Mozambique--distressed: In March 2016, Mozambique announced its intention to offer an exchange of the loan participation notes (LPNs) issued by a special-purpose entity, Mozambique EMATUM Finance 2020 B.V., against new U.S. dollar-denominated fixed-rate notes issued by the Republic of Mozambique, with maturity in 2023. The loan underlying the LPNs was granted to Empresa Moçambicana de Atum S.A. (Ematum), a government-owned company, and benefited from a guarantee from the government of Mozambique. We viewed this sovereign guarantee as a financial obligation of the government. Under the terms of the exchange, the new notes would carry a bullet maturity of 2023, while the LPNs had semiannual amortization payments and a final maturity of 2020. This would reduce annual debt servicing payments to about $70 million, from about $200 million, until the principal payment in 2023. We viewed the exchange as tantamount to a default because the offer implied that bondholders would receive less than the promise of the original LPN security.

Cyprus--distressed: In June 2013, the Cypriot government exchanged €1 billion of local law bonds into five separate issues with similar coupons and longer maturities (of between six and 10 years). We viewed the extension of maturities, without what we considered to be adequate offsetting compensation, as an exchange on less favorable terms. We also considered the offer as "distressed," rather than purely opportunistic, given the limited financing options available to the government, and taking into account our previous rating on the government’s debt of 'CCC.'

Greece--distressed: In February 2012, we lowered our sovereign credit ratings on Greece to 'SD' (selective default) following the Greek government’s retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors agrees to do so. In our opinion, Greece’s retroactive insertion of CACs materially changed the original terms of the affected debt and constituted the launch of what we consider to be a distressed debt restructuring. In the absence of the exchange offer, Greece faced an imminent risk of outright payment default because of its lack of access to market funding and the likely unavailability of additional official financing.

Ethiopia--not distressed: In 2018, the Ethiopian and Chinese governments negotiated maturity extensions on Ethiopia’s external debt owed to majority state-owned Chinese 'policy banks'. This included extending the repayment period for a loan related to the Addis Ababa-Djibouti railway project. Although the IMF referred to the reprofiled debt as non-concessional (based on their threshold for concessional debt requiring a grant element over 35%), we considered it best viewed as bilateral debt given the strategic nature of the project and loan terms. Therefore, in our view, the restructuring did not constitute a default under our criteria.

Related Research

Credit FAQ: Sovereign Distressed Debt Exchanges And Emergence From Default, April 15, 2025

Sovereign Debt 2025: Commercial Debt Will Reach A New Record High Of $77 Trillion, March 3, 2025

The Early Warning Signs Of Sovereign Foreign Currency Defaults, Oct. 13, 2024

Debt-For-Nature Swaps Are Gaining Traction Among Lower-Rated Sovereigns, Feb. 27, 2024

Credit FAQ: Sovereign Domestic Debt Exchanges In Focus, Sept. 14, 2023

Primary Contacts:	Giulia Filocca, Dubai 971-5-673-5067; giulia.filocca@spglobal.com
	Benjamin J Young, Dubai 971-4-372-7191; benjamin.young@spglobal.com
Secondary Contacts:	Roberto H Sifon-arevalo, New York 1-212-438-7358; roberto.sifon-arevalo@spglobal.com
	Frank Gill, Madrid 34-91-788-7213; frank.gill@spglobal.com
	Joydeep Mukherji, New York 1-212-438-7351; joydeep.mukherji@spglobal.com