The optimism that was built up after Greece successfully voted on austerity measures last week was slightly dampened today after rating agency Standard & Poor’s issued a statement this morning that France’s proposals for dealing with Greek debt by rolling over maturing Greek bonds would be considered a “selective default”.
Greek banks responded to the comments and defended themselves by saying that if the “selective default” was lifted quickly, then banks would not suffer. However, if the ratings agencies did leave Greece in default for an extended period of time, then an arrangement would have to be made with the European Central Bank to ensure that funding does not dry up.
The following statement was released from Standard & Poor’s.
“Standard & Poor’s Ratings Services lowered the long-term rating on the Hellenic Republic (Greece) to ‘CCC’ from ‘B’. In part, the downgrade reflected our view of the rising risk that an enhanced official financing package addressing the Greek government’s 2011-2014 financing needs could require private sector debt restructuring in a form that we would view as an effective default of its debt obligations under our ratings criteria. In recent weeks, a number of proposals relating to this topic have surfaced, and the particulars in some cases are evidently still in flux. This credit comment looks at the most prominent of the recent proposals, put forward by the Federation Bancaire Francaise (FBF) on June 24, 2011, in the context of our criteria for evaluating distressed debt exchanges and similar debt restructurings (see Related Research below). In brief, it is our view that each of the two financing options described in the FBF proposal would likely amount to a default under our criteria.”