Greece In Default Once Again On Troika-Imposed Bond Buyback, S&P Says

By Forbes

And so it happened.  Greece is once again in selective default, at least according to Standard & Poor’s.  The credit rating agency noted that the bond buyback that the Hellenic Republic is conducting as a prerequisite to getting the next tranche of bailout aid from the Troika constitutes a distressed debt restructuring, which in their books means default.

S&P announced that Greece’s credit rating was being cut from CCC to SD (selective default) late on Wednesday inNew York.  The credit rating agency referenced the December 3 offer by the Greek government to private investors to participate in a Dutch auction to exchange their sovereign bonds for short-term paper issued by the European Financial Stability Facility (EFSF).

Greece unveiled the bond buyback program, which is expected to be conducted on December 17, as part of the conditions imposed by the European Union and the IMF that made up the new deal which freed up a much-needed tranche of bailout money.

The deal, which targets €62 billion in bonds held by Greek banks, was structured in order to avoid an actual Greek default.  S&P argued that despite the fact that investors may voluntarily tender their bonds, the distressed nature of the sale, coupled with the fact that investors will ultimately receive less value than they were originally promised, made this a default.

Still, Greek banks are getting a good deal.  According to the Financial Times, Greek financial institutions are holding domestic sovereign debt at 25 to 30 cents on the euro.  The Hellenic Republic’s Debt Agency set a minimum range of 30.2% to 38.1% and a maximum of 32.2% to 40.1% on the original maturities on a series of 20 bonds, the British daily reported.  At the end of the day, this means they are getting better terms.

Global European banks weren’t much moved by the deal in the afterhours session in New York.  Shares in Banco Santander and Credit Suisse were unchanged, while Deutsche Bank slid 2.5% by 6:21 PM.  Their American counterparts didn’t exhibit major moves either, with Goldman Sachs andJPMorgan Chase marginally down, Citi slightly up, and Morgan Stanley practically unchanged.

S&P noted that after the auction, it expects the selective default to be “cured” and Greece’s credit rating to return to CCC.