Greece has all but formally defaulted on its debt if you remove the winks and nods from the ‘exceptions to the rules’ of what constitutes a default.  Standard & Poor’s Ratings Services has issued a downgrade that effectively says nations cannot call the “Do Over” game that you played as a child.

S&P has now lowered its ‘CC’ long-term and ‘C’ short-term sovereign credit ratings on Greece to ‘SD’ for a ‘selective default’ rating.  The recovery rating of ‘4’ which was on Greece’s foreign-currency issue ratings is unchanged.

The move is having no immediate impact on the after-market ADR trading in National Bank of Greece S.A. (NYSE: NBG).

S&P did note that, as for all other Eurozone members, its country transfer and convertibility (T&C) assessment for Greece remains at ‘AAA’.

The retroactive insertion of collective action clauses has an effect which binds 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.”  It is this retroactive insertion of collective action clauses which materially changed the original terms of the affected debt.  S&P then considers the launch of what it considers to be a situation of a distressed debt restructuring.

S&P noted, “Under our criteria, either condition is grounds for us to lower our sovereign credit rating on Greece to ‘SD’ and our ratings on the affected debt issues to ‘D’.”

JON C. OGG

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