Standard & Poor’s has downgraded the sovereign ratings of Greece to “selective default”, citing the crisis-hit nation’s move towards “distressed debt restructuring“.
Faced with acute financial crunch, Greece is pitching for changes in terms of the bonds held by private entities which would help the country to reduce its mounting debts by over $140 billion.
Greece’s ratings have been lowered to “selective default” from ‘CC’ long-term and ‘C’ short-term ratings, S&P Ratings Services said in a statement on Monday.
“We lowered our sovereign credit ratings on Greece to ’SD’ following the Greek government’s retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on February 23.
“In our opinion, Greece’s retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring,” the statement noted.
The struggling European nation’s move is part of efforts to procure another bailout package worth about $ 173 billion from European entities.
According to the rating agency, the effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a pre-defined quorum of creditors has agreed to do so.
”... we believe that the retroactive insertion of CACs will diminish bondholders’ bargaining power in an upcoming debt exchange,” S&P noted.
The developments in Greece, epicentre of European debt turmoil, is being closely watched internationally since an ultimate default could drastically impact the fragile global economic recovery.
The G-20 finance ministers and central bankers during their recent meeting in Mexico did not offer any firm commitment on bailout package and asked euro-zone countries to reassess the funding needs by March.