ATHENS, Feb 23 — Fitch yesterday cut Greece’s long-term ratings to its lowest rating above a default, becoming the first ratings agency to make the widely expected downgrade after the country announced a bond exchange plan to ease its massive debt burden.
All three big ratings agencies — Fitch, Moody’s and Standard & Poor’s — downgraded Greece in July when an initial debt swap plan was unveiled, and have warned that losses for private creditors would trigger a temporary default.
As expected, Fitch said it was downgrading Greece to “C” from “CCC”, and would follow up with a further downgrade to a “restricted default” when the bond swap was completed.
It will then reassess the country’s ratings when new bonds are issued as part of the debt exchange.
“It would come out to a low, speculative grade rating,” Fitch analyst Paul Rawkins told Reuters on the ratings after the reassessment, noting that rating would factor in the country’s economic prospects and new debt profile.
He said the current process of downgrades was largely procedural, following the path laid out by the agency in June. Ratings, which give an estimate of the capacity of a creditor to repay its debt, usually serve as a guide to investors.
Euro zone finance ministers on Tuesday agreed on a €130-billion (RM519.3-billion) rescue plan for Greece to avert a messy default, including a bond swap to shave €100 billion off Greece’s debt burden.
Bondholders will take losses of 53.5 per cent on the nominal value of their Greek bonds as part of the swap, with actual losses put at around 74 per cent in real terms.
The European Central Bank has agreed to a complex plan to ensure Greek bonds can still be used as collateral in its lending operations whilst in the process of being swapped.
Greece will take a loan from the European Financial Stability Facility (EFSF) that will come in the form of EFSF bonds. Those bonds will be passed to the ECB and put into a special account in case there are any losses on collateral during the short window of the bond swap. — Reuters
