Ratings agency issues warning on Greek debt plan
Standard and Poor’s, the credit-rating agency, has warned that it would class the current plan to involve private creditors in a second bail-out of Greece as a default.
S&P’s comments are the first since France’s banks made public their plan to roll over 70% of their Greek loans into 30-year bonds. The plan is designed to help share the burden of a new rescue package for Greece’s stricken economy.
The announcement is a blow to eurozone finance ministers who agreed during a video conference call on Saturday evening to further explore how to involve the private sector in a second bail-out, which is expected to run to €120 billion.
Those discussions will continue at the next meeting of eurozone finance ministers in Brussels next Monday (11 July) but European Commission officials have indicated that a final agreement is now not expected until September.
S&P poured cold water on two slightly different plans for rollovers of Greek bonds put forward last week by the Fédération Bancaire Française (FBF).
As an alternative to the 70% rollover, the FBF suggested that investors could buy new five-year bonds with proceeds of existing debt maturing before the middle of 2014.
Today’s statement from S&P said: “If either option were implemented in its current form, absent other mitigating information, we would likely view it as constituting a default under our criteria.
“In that event, we would likely lower Greece’s issuer credit rating to ‘SD’, indicating that it had effectively restructured some, but not all, of its bond debt.”
The credit rating agency added: “Regardless of whether the current FBF proposal is implemented, however, we continue to believe the Hellenic Republic’s uncertain ability to implement the revised EU/IMF program is a key risk weighing on its credit standing.”
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