S&P: Greece Could Face Ratings Cut

The Street
December 3, 2010

Standard & Poor's said late Thursday it could lower Greece's long-term sovereign credit rating by as many as two notches once it evaluates how the European Monetary Union's new facility for government bailouts will affect private debt holders.

The New York-based ratings agency placed the Greek government's "BB+" rating on CreditWatch with negative implications in the wake of the EMU's adoption of the European Stabilization Mechanism, or ESM, which becomes effective in July 2013. It noted that this decision "reflects our belief that Greece might be a future recipient of ESM funding."

S&P's main concerns are that bailouts made under the ESM would receive "preferred creditor" status, thus subordinating any "non-official" holders of the country's sovereign debt, and that politics could enter into the equation for future ESM bailouts.

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