TEXT-S&P cuts Greece ratings to 'SD'

Mon Feb 27, 2012 4:38pm EST

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Feb 27 - Rating Action	
On Feb. 27, 2012, Standard & Poor's Ratings Services lowered its 'CC' 	
long-term and 'C' short-term sovereign credit ratings on the Hellenic Republic 	
(Greece) to 'SD' (selective default).	
	
Our recovery rating of '4' on Greece's foreign-currency issue ratings is 	
unchanged. Our country transfer and convertibility (T&C) assessment for 	
Greece, as for all other eurozone members, remains 'AAA'.	
	
Rationale	
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 Feb. 23, 2012. The 	
effect of a CAC is to bind all bondholders of a particular series to amended 	
bond payment terms in the event that a predefined quorum of creditors has 	
agreed to do so. 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. Under our 	
criteria, either condition is grounds for us to lower our sovereign credit 	
rating on Greece to 'SD' and our ratings on the affected debt issues to 'D'.	
	
As we have previously stated, we may view an issuer's unilateral change of the 	
original terms and conditions of an obligation as a de facto restructuring and 	
thus a default by Standard & Poor's published definition (see "Retroactive 	
Application Of Collective Action Clauses Would Constitute A Selective Default 	
By Greece," Feb. 10, 2012, and "Rating Implications Of Exchange Offers And 	
Similar Restructurings, Update," May 12, 2009). Under our criteria, the 	
definition of restructuring includes exchange offers featuring the issuance of 	
new debt with less-favorable terms than those of the original issue without 	
what we view to be adequate offsetting compensation. Such less-favorable terms 	
could include a reduced principal amount, extended maturities, a lower coupon, 	
a different payment currency, different legal characteristics that affect debt 	
service, or effective subordination.	
	
We do not generally view CACs (to the extent that they are included in an 	
original issuance) as changing a government's incentive to pay its obligations 	
in full and on time. However, we believe that the retroactive insertion of 	
CACs will diminish bondholders' bargaining power in an upcoming debt exchange. 	
Indeed, Greece launched such an exchange offer on Feb. 24, 2012. 	
	
If the exchange is consummated (which we understand is scheduled to occur on 	
or about March 12, 2012), we will likely consider the selective default to be 	
cured and raise the sovereign credit rating on Greece to the 'CCC' category, 	
reflecting our forward-looking assessment of Greece's creditworthiness. In 	
this context, any potential upgrade to the 'CCC' category rating would inter 	
alia reflect our view of Greece's uncertain economic growth prospects and 	
still large government debt, even after the debt restructuring is concluded.	
	
If a sufficient number of bondholders do not accept the exchange offer, we 	
believe that Greece would face an imminent outright payment default. This is 	
because of its lack of access to market funding and the likely unavailability 	
of additional official financing. The revised financial assistance program 	
provided by most of the eurozone governments and the Stand-By Credit 	
Arrangement with the International Monetary Fund are predicated on a 	
successful exchange offer.	
	
Our T&C assessment for Greece, as for all other eurozone members, is 'AAA'. A 	
T&C assessment reflects our view of the likelihood of a sovereign restricting 	
nonsovereign access to foreign exchange needed to satisfy the nonsovereign's 	
debt-service obligations. Our T&C assessment for Greece expresses our view of 	
the low likelihood of the European Central Bank restricting nonsovereign 	
access to foreign currency needed for debt servicing.	
	
If Greece were to withdraw from eurozone membership (which is not our 	
base-case assumption) and introduce a new local currency, we would reevaluate 	
our T&C assessment on Greece to reflect our view of the likelihood of the 	
Greek sovereign and its central bank restricting nonsovereign access to 	
foreign exchange needed for debt service. Contrary to the current case, in 	
this scenario, the euro would be a foreign currency, and the Bank of Greece 	
would no longer be part of the European System of Central Banks. As a result, 	
under our criteria, the T&C assessment can be at most three notches above the 	
foreign-currency sovereign credit rating.	
	
Related Criteria And Research	
     -- Retroactive Application Of Collective Action Clauses Would Constitute 	
A Selective Default By Greece, Feb. 10, 2012	
     -- Long-Term Sovereign Rating On Greece Cut To 'CC' On Likely Default; 	
Outlook Negative, July 27, 2011	
     -- Sovereign Government Rating Methodology And Assumptions, June 30, 2011	
     -- Credit FAQ: When Would A "Reprofiling" Of Sovereign Debt Constitute A 	
Default?, June 3, 2011	
     -- Criteria For Determining Transfer And Convertibility Assessments, May 	
18, 2009	
     -- Rating Implications Of Exchange Offers And Similar Restructurings, 	
Update, May 12, 2009 	
     -- Introduction Of Sovereign Recovery Ratings, June 14, 2007	
	
Ratings List	
	
Downgraded	
                                        To                 From	
Greece (Hellenic Republic)	
 Sovereign Credit Rating                SD/SD              CC/Negative/C	
 Senior Unsecured                       D                  CC	
  Recovery Rating                       4                  4	
	
Affirmed	
	
Greece (Hellenic Republic)	
 Transfer & Convertibility Assessment	
  Local Currency                        AAA                	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.
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