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December 10, 2015

Egan-Jones Affirms Three Ratings on Peruvian Sovereign Debt Based upon New Criminal Charges Related to Peruvian Land Bonds

Egan-Jones Ratings Company has learned of a new development that supports its November 17, 2015 ratings of the following Peruvian Sovereign Debt:

  • Peruvian Foreign Currency Bonds "BB,"
  • Peruvian Local Currency Bonds ("Soberanos") "BB-," and,
  • Peruvian Land Reform Bonds "D."

According to news sources in Peru, including a December 8, 2015 Gestión article entitled "Ministerio Público denuncia adulteración de resolución del TC sobre bonos de la deuda agrarian" (, criminal charges have been brought against the Constitutional Tribunal (CT) Court secretary for falsification of documents in a major ruling related to the Peruvian Land Reform Bonds with implications for other Peruvian sovereign debt obligations.

The Peruvian Provincial Criminal Prosecutor’s Office No. 12 of Lima brought criminal charges on November 23, 2015 against Óscar Arturo Díaz Muñoz, the CT Court Secretary, for "Falsification of Documents in prejudice of the State and of Carlos Mesía Ramírez" related to the Court’s July 2013 ruling on Peruvian Land Reform Bonds, according to the official criminal complaint reviewed by Egan-Jones.

The Land Reform Bonds are an estimated $5 billion Peruvian sovereign obligation. The CT’s ruling abruptly reversed multiple prior court decisions, leaving the Land Reform Bonds essentially worthless. The new criminal charges cite direct evidence that the July 2013 draft decision ruling on the Peruvian Land Reform Bonds in favor of bondholders was manipulated with white-out to become the dissenting opinion of former Justice Carlos Mesía Ramírez without his consent.

As stated in Egan-Jones’ Peruvian Sovereign Debt announcement on November 17, 2015, "Character - the integrity of management or in the case of sovereigns, leadership, structure and policy - is the first of five key assessment criteria to evaluate credit quality." Peru’s weakness in this area was a key reason for Egan-Jones to assign sub-investment grade ratings to Peru’s local and foreign currency denominated debt.

"The confirmation by prosecutors that a final ruling of Peru’s highest constitutional court was illegally tampered affirms our serious concerns over character in the Peruvian government," said Sean Egan, founding principal of Egan-Jones. "This is additionally troubling as this was a major ruling that adversely impacted bondholder rights in connection with a significant sovereign obligation."

The official criminal charges state: "Our office believes that said act constitutes a crime against Public Faith in the mode of Falsification of Document, since it undermines legal certainty, and it obviously causes harm to the State and to former Justice Mesía Ramírez, to whom authorship of a document was falsely attributed." In addition, the charges noted that these acts should be analyzed by the Attorney General’s office related to the "possible commission of crimes of the Justices of the Constitutional Court."

Egan-Jones notes that Peru continues to access international capital markets to sell its sovereign and local debt, and has not disclosed the default of its Land Bonds and its conflicts with bondholders in its SEC filings.

Additional information about Egan-Jones can be found on this website.


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