S&P Cuts Greece to 'Selective Default'

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Standard & Poor's on Monday lowered its credit rating on Greece to ‘selective default.’

S&P said it revised its 'CC' long-term and 'C' short-term sovereign credit ratings on Greece to 'SD,’ or selective default.

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The move was expected following a Greek debt restructuring agreement reached last week that will require Greek bondholders to accept haircuts in many cases of more than 50%.

S&P said the agreement, hammered together so that Greece could obtain a $170 billion bailout package, “materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring.”

The ratings firm said it views the restructuring of Greece’s debt, especially on terms that are unfavorable to its bondholders, as “a default by Standard & Poor's published definition.”

Under certain circumstances, Greece could see its ‘CCC’ rating reinstated based on S&P’s forward-looking assessment of Greece’s creditworthiness, S&P said in a statement.

However, the fear of a Greek default still looms if “a sufficient number of bondholders do not accept the exchange offer,” according to the ratings firm. S&P noted that additional bailout funds earmarked for Greece will only be released if a successful bond deal is completed. A default is likely if Greece doesn't get that bailout money.

Also Monday, S&P lowered its outlook on the European Financial Stability Facility [EFSF], the fund for bailing out debt-laden eurozone countries.