(The 16) Moody´s : Greece defaulted
Moody’s comments on Greek debt exchange
Global Credit Research – 09 Mar 2012
London, 09 March 2012 — Moody’s Investors Service says that it considers Greece (C/no outlook) to have defaulted per Moody’s default definitions further to the conclusion of an exchange of EUR177 billion of Greece’s debt that is governed by Greek law for bonds issued by the Greek government, GDP-linked securities, European Financial Stability Facility (EFSF) notes. Foreign-law bonds are eligible for the same offer, and Moody’s expects a similar debt exchange to proceed with these bondholders, as well as the holders of state-owned enterprise debt that has been guaranteed by the state, in the coming weeks. The respective securities will enter our default statistics at the tender expiration date, which is was Thursday 8 March for the Greek law bonds and is currently expected to be 23 March for foreign law bonds. Greece’s government bond rating remains unchanged at C, the lowest rating on Moody’s rating scale.
Moody’s understands that 85.8% of debtholders holding Greek-law bonds issued by the sovereign have agreed to the exchange, with the vast majority of remaining bondholders likely to be drawn in following the exercise of Collective Action Clauses that will be inserted pursuant to a recent Act by the Greek parliament. The terms of the exchange entail a discount — a loss to creditors — of at least 70% on the net present value of existing debt.
According to Moody’s definitions, this exchange represents a ‘distressed exchange’, and therefore a debt default. This is because (i) the exchange amounts to a diminished financial obligation relative to the original obligation, and (ii) the exchange has the effect of allowing Greece to avoid payment default in the future. (See also http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_134141.)
Moody’s announcement has no implications for Greece’s issuer rating, which remains C. Moody’s does not use a ‘Default’ or ‘Selective Default’ rating, but rather maintains ratings on securities in default that are indicative of the magnitude of expected losses to investors. The securities subject to the default are listed at the end of this announcement.
Moody’s will revisit Greece’s rating in due course to assess the impact of the exchange on the sustainability of Greece’s debt burden together with other relevant factors, including Greece’s likely compliance with measures that are a condition of external support and its growth prospects.
Moody’s had downgraded Greece’s sovereign rating to C from Ca on 2 March 2012 further to the announcement of the debt exchange proposals. Moody’s had assessed these as implying expected losses to investors in excess of 70%, which is consistent with the rating agency’s criteria for a C rating. At the time, Moody’s had said that the risk of a default, even after the debt exchange has been completed, remains high.
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