SP Cuts Greece's Credit Rating to 'Selective Default'
Standard & Poor's has cut Greece's 'CCC' long-term and 'C' short-term sovereign credit ratings to 'SD' (selective default) following the Greek government's offer to buy back its debt at a steep discount, the international rating agency announced on Thursday.
"We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's Dec. 3, 2012, invitation to private sector bondholders to participate in a series of debt buyback auctions. In our opinion, Greece's invitation constitutes the launch of what we consider to be a distressed debt restructuring," S&P said in a statement.
The Greek Public Debt Management Agency announced on December 3 it would swap the country's existing debt with six-month notes issued by the European Financial Stability Facility.
The buyback will be conducted through a "modified Dutch auction" in which bondholders will be offered a maximum price of between 32.2% and 40.1% of the debt's face value, depending on the bond maturities.
Under the offer, bondholders must indicate what order of losses they are prepared to shoulder on the bonds before the final buyback price is set.
S&P said it viewed the swap as tantamount to default as the offer "implies the investor will receive less value than the promise of the original securities" and "the offer is distressed, rather than purely opportunistic."
On November 8 the Greek parliament passed a highly unpopular austerity bill, setting out 13.5 billion euros in spending cuts, as well as tax hikes and labor reforms by 2016 as demanded by the troika (the European Union, the IMF and the European Central Bank) to reduce the country's debt and deficit.
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