S&P cuts Greek sovereign rating to “selective default”

Standard & Poor’s late Monday cut Greece’s “CC”
long-term and “C” short-term sovereign credit ratings to “selective
default”(SD), after the debt-laden country launched a bond swap plan to
ease its debt burden last Friday.

The rating agency attributed its rating decision mainly to the Greek
government’s retroactive insertion of collective action clauses (CACs)
in the debt swap deal, a legislation Greece has passed to force all
private bondholders to participate in the swap.

“In our opinion, Greece’s retroactive insertion of CACs materially
changes the original terms of the affected debt and constitutes the
launch of what we consider to be a distressed debt restructuring,”
S&P said in a statement on its website.

“Under our criteria, either condition is grounds for us to lower our
sovereign credit rating on Greece to ‘SD’ and our ratings on the
affected debt issues to ‘Default’,” the rating agency added.

S&P noted that Greece’s decision to add CACs into the debt
reduction program was equal to a debt issuer’s “unilateral change of the
original terms and conditions of an obligation”, something it viewed as
a “de facto restructuring and thus a default.”

While stating that it does not generally view CACs as changing a
government’s incentive to pay its obligations in full and on time,
S&P said it believes that Greece’s decision will “diminish
bondholders’ bargaining power in an upcoming debt exchange.”

The rating agency also forecast “an imminent outright payment
default” if a sufficient number of bondholders do not accept the
exchange offer.

“This is because of its lack of access to market funding and the
likely unavailability of additional official financing,” it added.

Greece formally launched the bond swap program last Friday, under
which, bondholders are to take losses of 53.5 percent on the nominal
value of their Greek bonds, with actual losses put at around 75 percent.

The S&P move also came hours after German parliament approved a
second bailout, including 130-billion-euro (about 174 billion U.S.
dollars) loans, for Greece as part of Europe’s effort to keep indebted
Greece out of bankruptcy.

Meanwhile in a prompt response shortly after the S&P move, Greek
Finance Ministry said on early Tuesday that the latest downgrade of
Greece’s credit rating to “selective default” has no impact in the
banking sector.

“As expected, S&P has proceeded to downgrade Greece to ‘SD’ and
the list of PSI eligible securities to ‘D’ following the CACs
legislation onto Greek Law Bonds and the launch of the large scale
voluntary PSI offer,” the ministry said in a press release.

“The downgrade has no impact in the Greek banking sector as its
liquidity effect has been addressed by the Bank of Greece, and
consequently by the EFSF (European Financial Stability Facility),”
stressed the ministry.

The Greek sovereign will remain in “SD” rating while the PSI offer is
open and upon completion of the PSI, the sovereign is expected to be
re-rated upwards, said the ministry.

Major credit rating downgradings of Eurozone countries in 2012

Related:

Greece says S&P downgrade has no impact on banking sector

ATHENS, Feb. 28 (Xinhua) — The latest
downgrade of Greece’s credit rating by Standard and Poor’s to “selective
default” (SD) has no impact in the banking sector, Greek Finance
Ministry said on early Tuesday.

“As expected, S&P has proceeded to
downgrade Greece to ‘SD’ and the list of PSI (Private Sector
Involvement) eligible securities to ‘D’ following the CAC (Collective
Action Clauses) legislation onto Greek Law Bonds and the launch of the
large scale voluntary PSI offer,” the ministry said in a press release. 
Full story

Fitch downgrades Greece to “C” from “CCC”

LONDON, Feb. 22 (Xinhua) — Rating
agency Fitch downgraded Greece’s long-term foreign and local currency
Issuer Default Ratings (IDRs) to “C” from “CCC” on Wednesday, said a
statement.

Moreover, the statement said it now considered that a Greek debt default was “highly likely in the near term.”