Minera Yanacocha, Peru's largest gold producer could be the latest victim of the country's controversial election. The company's BBB-rated structured notes were placed on credit watch with negative implications by Standard & Poor's last week. The $100 million of bonds backed by export receivables were sold by Solomon Brothers in 1997 to a variety of international investors.

"The Yanacocha transaction is the only Peruvian structured deal with investment grade ratings," said Nancy Gigante Chu from S&P in New York. "We are still examining the situation. If we conclude that the company will be able to continue to operate even if the government defaults on both its foreign and local currency or in case of severe economic stress we will maintain the current rating."

The rating action follows the placement of Peru's BBB-minus local currency rating and BB foreign currency rating on credit watch with negative implications.

"A credit watch is always related to a specific event, in this case it was the Peruvian election," explained Bruno Boccara, primary analyst for Peru and director of Latin sovereign ratings at S&P.

"We are in a wait and see attitude to see whether the Peruvian political and economic environment will be less conducive to a continued implementation of much needed reforms. We need to see what happens when the Organization of American States goes to Peru to assess the election and how the opposition reacts. Once we are able to establish how all of these factors will shape the Peruvian political and economic landscape we'll make a decision."

Following an allegedly fraudulent first round, opposition candidate Alejandro Toledo withdrew from the run-off election, which took place on May 28. As a result, President Alberto Fujimori won his third term in office.

International observers condemned the elections and sanctions against Fujimori's government are possible.

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