Bloomberg News

Greece Using Debt Writedown Would Be Selective Default, S&P Says

February 13, 2012

Feb. 10 (Bloomberg) -- Greece’s implementation of a measure that imposes losses on investors who fail to support the nation’s debt restructuring would qualify as a selective default, according to Standard & Poor’s.

The application of the so-called retroactive collective action clauses that modify the amount or timing of debt payments would result in the New York-based firm downgrading Greece to SD, or selective default, S&P said today in a statement.

Greek-law-governed debt will be cut to D from CC should the nation’s parliament pass laws that allow the amending of the securities retroactively to include CACs, S&P said. Greek bonds that aren’t governed by Greek law and aren’t affected by the change would keep their CC ranking, 10 steps below investment- grade. The notes would be lowered to C “if and when they became eligible for the upcoming debt exchange.”

“In light of the protracted discussions over Greece’s sovereign debt, we take the view that legislation leading to the Greek government’s introducing CACs to outstanding Greek sovereign debt issuances indicates a forthcoming debt restructuring, which we expect to take place in the coming weeks,” S&P said.

Greek Prime Minister Lucas Papademos told members of his government today they must back deeper budget cuts needed to prevent financial collapse or quit, as political dissension threatened to unwind the country’s second bailout.

Bond Payment

Papademos said failure to secure the 130 billion-euro ($171 billion) rescue package that’s under negotiation threatened 11 million Greeks with a default that would halt the payment of wages and pensions and shut down schools, hospitals and businesses. He spoke after five ministers resigned in two hours and protesters clashed with police in Athens.

Concern the bailout might unravel mounted after euro-area finance ministers yesterday kept back approval of Greece’s austerity measures, one of the Greek governing coalition parties pushed back against German demands for deeper cuts, and police used tear gas to counter demonstrators in the capital.

Greece faces a 14.5 billion-euro bond payment on March 20. The proposed bond exchange is intended to help the country reduce its debt-to-gross domestic product ratio to 120 percent by 2020 from 162 percent in 2011.

--Editors: Dave Liedtka, Paul Cox

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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