S&P Puts New Obstacle in Greece's Path

Wall Street Journal
July 4, 2011

Standard & Poor's Corp. said Monday that a leading proposal for easing repayment terms on Greece's sovereign debt would amount to a default under the ratings firm's criteria, complicating efforts by international lenders to forge a second bailout package to keep the country out of bankruptcy.

The comments from S&P are the first considered reaction from a rating agency since details of a plan first put forward by French banks—the biggest overseas holders of Greek debt—emerged last week.

The European Central Bank has maintained that it won't accept bonds with a default rating as collateral. Hence, averting a selective default rating is crucial to ensure that banks holding Greek bonds aren't shut out from the ECB's liquidity operations for the few days that the country's bonds would be rated selective default.

Euro-zone 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.

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