Another ratings agency, Standard and Poor’s announced today that it has downgraded Greece’s debt rating to CC from CCC, which is just two notches above default. Its outlook on the rating is negative.
According to S&P’s criteria, the E.U. rescue plan for Greece involves a voluntary bond exchange, which is a debt swap, and this proposed restructuring is considered a “selective default.”
Consequently, once officials push through the plan and other E.U. member countries holding Greek bonds make losses in the bond swap, then that is when Greece will be considered to have “defaulted”. (even if it is considered as “partial”)
In Standard and Poor’s own statement it mentioned that “The proposed restructuring of Greek government debt would amount to a selective default under our rating methodology. We view the proposed restructuring as a ‘distressed exchange’ because, based on public statements by European policy makers, it is likely to result in losses for commercial creditors.”
This follows Moody’s downgrade of Greece on Monday by three notches.
Fitch ratings agency also cut Greece’s rating by three levels on July 13.
The Euro fell slightly after the S&P announcement but no significant movements were made since the market has already discounted the fact that Greece will be considered to have defaulted after the bailout plan.