” Fitch ratings agency says it has downgraded Greece further into junk status, from ‘CCC’ to ‘C’ following the announcement of the details of the country’s debt swap deal with private creditors.
The agency said Wednesday the downgrade indicated “that default is highly likely in the near term.” In June, the agency had said it would consider Greece to be in restricted default if the bond swap deal went ahead.
The bond swap deal with private creditors will see €107 billion ($141 billion) of Greece’s debt held by banks and other private holders of government bonds written off. (Further Reading Associated Press)
Fitch said in a statement
“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’.
Fitch considers that the proposal to reduce Greece’s public debt burden via a debt exchange with private creditors will, if completed, constitute a rating default, and result in the country’s IDR being lowered to ‘Restricted Default’ (‘RD’) upon completion. The ratings of GGBs affected by the exchange, including those not tendered but restructured under CACs, which are expected to be imposed retrospectively on bonds issued under Greek law, will also be lowered to ‘D’ (‘default’) at this time.” (Full Statement Here)
Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, wrote in his analysis “Greek Default Risks Remain“:
“As the PSI gets underway, the rating agencies are likely to place Greece in “default” or “selective default” status and while this in itself will not trigger the CDS chain reaction, it may prove sufficient to trigger default clauses in other kinds of securities, including the nearly $100 bln of derivatives in Greece (according to BIS figures). (Further Reading Forexpros)
For bond credit ratings table see Here
PS Can we describe the Eurogroup deal as a ‘success story’?
I’m not a fan of many of the program conditions for Greece. The pace of fiscal consolidation should definitely be slowed. But what is it going to take to get Greece to go after some big sacred cows like land privatization, or tourism sector liberalization?
I want to be sympathetic. No question that many, many Greeks are suffering but how long does the Parthenon and other monuments stay open each day? Is Greece really maximizing its main comparative advantage, i.e., tourism? Does landing cruise ships in Greece have to be as hard as it currently is? The contrast between Athens and Rome in terms of being tourist friendly is striking and makes it difficult to be sympathetic.