French plans for ease of Greek Equals a default - Standard & Poor’s
Published 04/07/2011 | 13:06
Rating agency Standard & Poor’s has called a proposal by French banks to ease the repayment of Greek sovereign debt an essential default.
The agency is the first to come out of the traps on the heels of the French plan whereby the banks would reinvest half of their maturing Greek debt in new 30-year Greek bonds, maintain 30pc and invest the remaining 20pc in a special investment vehicle.
French banks are among the biggest lenders to Greece and have €53bn exposure to the southern European country.
The banks are meant to guarantee the principal of the new Greek debt.
However, the European Central Bank has said it won’t accept bonds with a default rating as collateral.
So averting a default is key to ensuring that banks holding Greek bonds aren't shut out from the ECB's liquidity operations for the short period that Greece’s bonds would essentially be rated selective default.
Eurozone finance ministers had stressed the need to avoid a selective default rating on the country's debt in any new bailout deal for Greece when they agreed to lend the country the next tranche of funds from last year's bailout.
"In brief, it is our view that each of the two financing options described in the French bank proposal would likely amount to a default under our criteria," S&P said in a press release. The agency doesn't consider either option as strictly a debt "exchange," but both would be considered a "similar restructuring."
"This is because we believe—based on recent public statements of euro-zone policy makers—that the aim of the financing options is to reduce the risk of a near-term debt payment default or debt restructuring with haircuts and give the Greek government more time to undertake fiscal consolidation and policy reforms," S&P said.
"Once either option is implemented, we would assign a new issuer credit rating to Greece after a short time reflecting our forward-looking view of Greece's sovereign credit risk," S&P said.