S&P Slashes Greece's Credit Rating
Standard & Poor’s took another axe to Greece’s credit rating Monday amid fresh fears about how the debt-ridden country will escape from its crisis.
The downgrade further into junk territory comes as European Union officials struggle to reach a consensus on how to solve Greece’s debt crisis and prevent the damage from spreading to other countries that use the euro.
S&P downgraded Greece’s credit rating to “B” and C” from “BB-“ and “B” and left the door open to further cuts by keeping a negative outlook on the rating.
S&P said the move reflects the increasing chance Greece’s euro-zone creditors will extend the maturities on 80 billion euros of bilateral loans to Athens. The likely burden sharing with euro- zone creditors would constitute a distressed exchange, S&P said.
“Even if there were no discount of principal, such an extension of maturities is generally viewed to be less favorable to commercial creditors than repayment according to the original terms of the debt," S&P said in the report.
At the same time, S&P said Greece missed its 2010 fiscal target and achieving its 2011 target “is uncertain.” That outcome, S&P says, means Athens may not be able to raise money from the commercial markets later this year or early next, as had originally been planned.
As a result, S&P said many of Greece’s euro zone official creditors may see a restructuring of official and commercial debt as the best path forward.
To restore Greece’s debt levels to a sustainable level, principal reductions of 50% or more could be needed, S&P predicted.
For its part, Greece said the downgrade was unjustified and not based on fresh data. Greece also questioned the timing of the S&P move.
“Credit rating decisions should be based on objective data, policy-makers' announcements and realistic assessments of the conditions facing an economy," Greece’s finance ministry said in a statement. "Not on market rumors and press reports. When such decisions are based simply on rumors, their validity is seriously cast in doubt."
Shares of Greece stocks and banks, including National Bank of Greece (NYSE:NBG), were also under pressure.