Moody’s slashes Greek debt three notches
Moody’s has demoted Greek debt three notches to the second lowest possible rating, piling pressure on Athens and eurozone leaders, who only last week hammered out a second rescue package for the beleaguered nation.
Following agreement on the latest, €109bn package for Greece last week, Moody’s cut Greece’s public debt from Caa1 to Ca, citing “substantial losses” for private investors, who seem set to share some of the pain with eurozone countries when Greek government debt is restructured and exchanged.
Moody’s rating implies Athens is already in default.
The US agency also noted the ongoing support Athens needs could ultimately result in the eurozone’s cashcows also facing downgrades.
“For creditors of such countries, the negatives will outweigh the positives and weigh on ratings in future,” Moody’s said.
The support deal agreed last Thursday implies bond buybacks and debt exchange, “hence a default on Greek government bonds is virtually 100%,” the agency said.
Moody’s is understood to be ready also to reappraise risks attaching to new securities issued by Greece after the exchange.
Both Standard & Poor’s and Fitch already de-rated Greek debt, and it is widely believed they will also class it as in selective default once the exchange is done.
German ratings agency Feri moved early to demote Greek debt, too.
Meanwhile asset managers reacted with caution to the follow-on bail-out.
Goldman Sachs Asset Management’s Jim O’Neill said it was an aggressive attempt to stem the eurozone’s problems, but might not spell the end of them.
RCM, part of Allianz Global Investors, told the Financial Times the package would halt contagion deteriorating “for now”.
Chris Bullock, portfolio manager of the Henderson Credit Alpha fund, said Thursday’s deal “delivered a strong message from the heads of state that they will do whatever it takes to keep the existing membership together, a clear attempt to try to calm frayed nerves throughout the financial markets.
“As usual, the devil is in the detail – or lack of it – and there remains significant uncertainty about how these measures will be implemented, the conditionality and whether this really hits at the heart of the problem. Like most things in the bond market, this revised plan is very much ‘good until tested’.”