Greek default “highly likely” in new Fitch rating of sovereign bonds

Fitch Ratings has lowered Greece’s long-term issuer default rating to ‘CCC’ from ‘C’, suggesting a default on Greek government bonds is “highly likely”.

Fitch maintained its short-term foreign currency rating at ‘C’, and affirmed the euro area Country Ceiling at ‘AAA’.

“The downgrade follows yesterday’s Eurogroup statement on a second financing programme for Greece including ‘private sector involvement’ (PSI) and a subsequent announcement from the Greek authorities outlining the terms of the proposed exchange of Greek Government Bonds (GGBs).” Fitch said.

“The rating action is in line with Fitch’s statement on 6 June 2011, which outlined its rating approach to a sovereign debt exchange.

“The Eurogroup communique acknowledges that a common understanding has been reached between the Greek authorities and the private sector on the general terms of a ‘private sector involvement’ (PSI) exchange offer, including a nominal haircut of 53.5% to the face value of GGBs. The subsequent statement from the Greek authorities expands on the terms of the debt exchange and confirms the Greek government’s intention to introduce collective action clauses (CACs) into those GGBs governed by Greek law.

“In Fitch’s opinion, the exchange, if completed, would constitute a ‘distressed debt exchange’ (DDE) in line with its criteria and consequently yesterday’s announcements set in motion the agency’s process for reviewing Greece’s issuer and debt securities ratings. The sovereign IDR has accordingly been lowered to ‘C’ from ‘CCC’ indicating that default is highly likely in the near term. The ratings of the securities subject to the exchange have also been lowered to ‘C’ from ‘CCC’.”

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