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'.
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
-- Rating Implications Of Exchange Offers And Similar Restructurings,
Update, May 12, 2009
-- Introduction Of Sovereign Recovery Ratings, June 14, 2007
Greece (Hellenic Republic)
Sovereign Credit Rating SD/SD CC/Negative/C
Senior Unsecured D CC
Recovery Rating 4 4
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