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Greece downplays S&P selective default downgrade

Standard & Poor’s has cut Greece’s credit rating to “selective default” after the country’s bondholders became legally bound to accept the terms of the government’s debt restructuring programme.

However, the move was downplayed by the Greek government, which said the downgrade was “expected” and will have no impact on the country’s banking system.

S&P lowered Greece’s long-term sovereign credit rating from CC to SD last night because the government retroactively inserted collective action clauses in the documentation of some sovereign bonds.

“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,” according to the ratings agency.

“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.”

S&P adds while the inclusion of CACs does not necessarily suggest a government is unwilling to pay its debt in full and on time, the move could affect bondholders’ bargaining power in the upcoming debt exchange.

According to the agency, Greece could have the SD rating removed if the debt exchange goes ahead as planned next month. However, the country could be placed in default if too few bondholders accept the deal.

In a statement, the Greek finance ministry reports: “The move was announced in advance and all impacts have been planned, designed and treated with the relevant decisions of the European Council and the Eurogroup.

“This evaluation has no effect on the Greek banking system as any impact on liquidity has already been addressed by the Bank of Greece and later from the European Financial Stability Facility.”

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