March 9 - Fitch Ratings has downgraded Greece’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘RD’ (‘Restricted Default’) from ‘C’ following today’s confirmation from the Greek government and eurozone officials that the exchange of Greek government bonds will proceed. The downgrade to ‘RD’ reflects Fitch’s previous commentary that the exchange would constitute a sovereign default event under the agency’s distressed debt exchange (DDE) rating criteria, and follows the downgrade of Greece to ‘C’ from ‘CCC’ on 22 February. Greece’s Short-term foreign currency IDR remains unchanged at ‘C’.
The euro area Country Ceiling, which is applicable to all euro area member states, also remains unchanged at ‘AAA.’ Under the exchange, each EUR100 face value amount of Greek government bonds will be exchanged for new bonds with a face value of EUR31.5 and EUR15 of EFSF (‘AAA’) notes. Bondholders will also receive a notional EUR31.5 of Greek GDP-linked securities. The implied loss relative to the original terms and conditions of the bonds implied by the exchange is estimated by market participants to be approximately 74%. Fitch has also downgraded the issue ratings of the tendered securities under the Greek-law bondholder exchange to ‘D’ from ‘C’, where they will remain for as long as the sovereign is rated ‘RD’ after which the ratings will be withdrawn. The foreign-law bond exchange offer does not close until 23 March and the issue ratings on these securities will therefore remain at ‘C’ until exchanged on the 11 April, after which they will be rated ‘D’ and the ratings subsequently withdrawn.
The issue ratings of securities not eligible for the bond exchange remain unchanged. The settlement date for Greek-law exchanged bonds - when new Greek government bonds will be issued - is Monday 12 March. Following completion of the debt exchange and the issue of new securities, Fitch will raise Greece’s IDR out of ‘RD’ and assign ratings to the new securities consistent with the agency’s forward-looking assessment of Greece’s credit profile following the distressed debt exchange. The post- exchange IDR and securities ratings are likely to be low speculative grade.
These actions are in line with Fitch’s statement on 6 June 2011 (see ‘Fitch Outlines Rating Approach to a Sovereign Debt Exchange’) and the agency’s Distressed Debt Exchange Criteria (12 August 2011).