Monday, May 9, 2011

S&P Cuts Greek Debt Rating on Fears of 'Selective Default"

Standard & Poor's has cut Greece's long-term sovereign credit rating to B from BB- due to concerns that euro-zone officials are looking to extend the debt payment maturities of the European Commission's portion of the nation's 110 billion euro bailout.

 "As part of such an extension, we believe the euro zone creditor governments would likely seek 'comparability of treatment' from commercial creditors in the form of their similarly extending bond and loan maturities," the ratings company said.

Such burden sharing would constitute a "distressed exchange," according to S&P's criteria, which would result in a rating of SD, or selective default, the company said.

"Even if there were no discount of principal, such an extension of maturities is generally viewed to be less favorable to commercial creditors than repayment according to the original terms of the debt," S&P said. Greece's ratings remain on Credit Watch with negative implications, S&P said.

While many consider S&P a laggard in its downgrades, Greek Finance Minister George Papaconstantinou is now questioning the credibility of S&P for this downgrade. Papaconstantinou, however, did not suggest a way out of its financial mess.

Bottom line: Financial judgement day is nearing for the Greeks and it will set the tone for the other PIIGS.

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