S&P Says Bank Plan Opens Door to Default

Wall Street Journal
July 5, 2011

European efforts to encourage private investors to contribute to a new international bailout for Greece hit new problems Monday when the Standard & Poor's rating company said the leading proposal under consideration would likely bring the country into default.

The comments from S&P are the first reaction from a rating company to a preliminary plan that emerged last week from French banks—the biggest foreign holders of Greek debt. The plan aims to encourage holders of Greek government bonds maturing between now and 2014 to roll over as much as €30 billion ($44 billion) into new Greek bonds. That would lessen the amount of new money that other euro-zone governments and the International Monetary Fund would need to lend to stave off a new Greek payments crisis.

The S&P assessment was that the French plan would leave participating bondholders worse off, and therefore would probably lead to Greece being declared in "selective default," indicating that the default applies to only some of an issuer's bonds.

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