Financial Times
July 4, 2011
French and German banks’ plan to roll over their holdings of Greek debt suffered a blow on Monday as Standard & Poor’s, the credit rating agency, said the move would amount to a default.
The proposal to provide up to €30bn ($43.6bn) in financing for Greece had been made conditional on rating agencies not downgrading Greece’s debt. But S&P said on Monday that any rollover would be a “distressed” transaction and thus lead to Greece’s rating being lowered to selective default.
There was no immediate reaction from the Greek finance ministry to the S&P statement. French officials said they were not unduly concerned by the move, which had been anticipated. “It should have no immediate impact on the CDS [credit default swap] markets,” one said.
The German government also had no official comment. But civil servants said they had factored in the eventuality of a so-called ratings event from the beginning.
“The important thing is that we avoid a credit event, with all the resulting negative impact on credit-default swaps which occupied us after the Lehman bankruptcy,” one official said. “If private sector participation does lead to a partial default being called, the biggest problem we’ll face is persuading the ECB to continue to take affected bonds in exchange for providing liquidity to Greek banks.”
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