ECB left owning 'junk' credit as K+S is downgraded

FRANKFURT, Oct 21 (Reuters) - The European Central Bank was left owning ‘junk’ credit for the first time ever on Friday as the bonds of German potash maker K+S that it owns were downgraded by the rating agency S&P.

S&P Global Ratings lowered its long-term credit rating on the potash and salt producer to BB+ from BBB-, effectively downgrading it from the lowest ‘investment-grade’ rating to ‘junk’.

The ECB has bought three K+S bonds as part of its corporate-debt buying scheme, the latest addition to a 1.74 trillion euros programme aimed at reviving inflation and growth in the euro zone.

Even if the ECB can only buy debt that has an investment-grade rating, it is not required to sell bonds that are downgraded to junk.

The central bank may face a loss on its investment in the three K+S bonds .

Their yields, which move inversely to prices, have spiked since S&P announced last summer it was reviewing its rating on the firm. They were rising further on Friday.

An ECB spokesman declined to comment about what the bank would do with the three K+S bonds after the downgrade.

S&P also kept a negative outlook on its new K+S rating, meaning further downgrades were possible.

The ECB’s purchases of German corporate bonds are conducted by the Bundesbank but any profit or loss on the investment would be shared among all euro zone central banks.

Reporting By Francesco Canepa; Editing by Richard Balmforth