S&P cuts Greece rating, deems “selective default”

Standard & Poor’s is the last of the three main ratings agencies to decide a “selective” Greek default remains likely, despite a pledge by policymakers last week to restructure the sovereign’s debt.

Following in the footsteps of rival ratings agencies Moody’s on Monday and Fitch the day after EU policymakers met last week, Standard & Poor’s has judged “the proposed restructuring in the form of an exchange into discount or par bonds or a rollover into 30-year par bonds of Greek government debt would amount to a selective default”.

The long term rating for Greece was dropped one notch from CCC to CC.

Greece’s short term debt rating remains at C. Both the long and short term ratings retain a negative outlook.

Greece is a “distressed borrower” incapable of meeting its debt obligations, said the ratings agency in a statement. “Under our criteria, we characterise a distressed borrower as one that would–in the absence of debt relief–fail to pay its debt on time and in full.”

Despite an agreement reached by EU leaders last week on a proposal to restructure Greece’s debt, the event is unlikely to occur before September 2011 as it still needs to be ratified by all individual European parliaments.

Both an exchange and a rollover of Greek debt appear unfavourable to investors, said the ratings agency, adding “we view the terms of the restructuring as offering less value than the promise of the original securities”.

It said purchasing Greek sovereign bonds in the secondary market one at a time is not viewed as selective default, since the transactions are entered into voluntarily by both buyer and seller. But purchases of debt securities at large discounts to par suggests Greece’s weakened creditworthiness, added Standard & Poor’s.

Coordinated bond buybacks at fixed prices may be classified as selective default as per the ratings agency’s criteria, it said.

Last week, Fitch lowered Greek public debt to “restricted default”, while Moody’s subsequently cut its rating by three notches, effectively classing the sovereign as already in default.

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