Forex News – Moody’s downgrades Greece by three notches

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Moody’s Investors Service announced today that it has cut Greece’s credit rating by three notches, to Ca from Caa1. This was much expected after the EU summit last Thursday came to an agreement on a rescue package for the debt-ridden nation which will “substantial” losses for investors, amounting to a default according the ratings agency’s criteria.

As part of the bailout plan, the EU leaders agreed on a bond swap between debtors and the Greek government. Moody’s said it will re-assess the risk profile of any outstanding or new securities issued by the Greek government after the debt exchange has been completed.

“The combination of the announced EU program and the debt exchange proposals by major financial institutions imply that private creditors will experience substantial losses on their holding of Greek government bonds and this is something we need to reflect in the rating,” Moody’s senior analyst Sarah Carlson said in an interview.

The financing package will consist of 109 billion Euros ($157 billion) from the Eurozone members and the IMF.. Financial institutions will contribute 50 billion euros through a series of bond exchanges and buybacks to cut Europe’s biggest-debt load.