24/7 Wall St.
March 7, 2011
Moody’s downgraded Greece’s government bond ratings to B1 from Ba1 and said its outlook for the sovereign paper was “negative.” The drop was three notches, an unusual move for a credit rating agency industry where cuts of one level are more common. Moody’s may believe that it had been late to signal problems in the sovereign debt market, so a steep cut may help counter those accusations.
Moody’s gave its usual reasons for lowering sovereign ratings for troubled EU nations. Greece’s restructuring plans are too “ambitious.” The Greeks are inexperienced and not aggressive collecting taxes. Existing debt may need to be restructured. In the case of Greece, much of its paper comes due in 2013. The results could be that creditors will get cents on a dollar even though they will enjoy high yields between now and then.
Moody’s was mute on two other critical factors which will affect Greece and it is unusual that they were not part of the headlines in the ratings agency’s announcement of the downgrade. Greece faces just as much risk from high fuel prices and civil unrest as from tax collections.
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