Rating agency Standard & Poor's (S&P) downgraded Jamaica's debt to junk status, having classified the National Debt Exchange as a default.
Government announced a second domestic debt exchange programme officially launched on Tuesday, that aims to cut J$17 billion in annual interest payments on local bonds.
"Based on our criteria, we consider this exchange a default," said S&P.
The agency lowered its foreign and local currency sovereign credit ratings on Jamaica to 'SD' from 'B-/B'. Additionally, it lowered its ratings on the bonds that are included in the sovereign's proposed domestic debt exchange to 'D'. And it lowered the ratings on the government securities not included in the debt exchange to 'CCC'.
"In our view, the offer implies that investors will receive less value than promised as per the original securities based on the lower interest rate and maturity extension - an average increase of five years," said S&P.
"We view this offer as distressed rather than opportunistic because the issuer does not intend to fulfil its original obligations."
S&P also downgraded Jamaica following the first debt swap called the Jamaica Debt Exchange in 2010.
The NDX is a precursor to an International Monetary Fund (IMF) agreement for Jamaica. The IMF on Tuesday officially endorsed the debt swap.
"Although such an agreement could ease short-term liquidity concerns, a sustained improvement in the Government's financial profile will take many years, in our view, because of the country's structural economic weaknesses," said S&P.
Debt burden still high
Despite the reduction in debt-servicing needs following the debt exchange, Jamaica's general government debt burden will remain high, at above 115 per cent of GDP in 2013, said S&P.
Moreover, its net international reserves were approximately US$1 billion at the end of January, down from US$1.9 billion at the beginning of 2012.
S&P said it expects to assign new sovereign credit rating in the 'CCC' category to the NDX bonds on the completion of the debt exchange, which is scheduled for later this month.