Greece had its credit rating cut to junk by Standard and Poor’s, which forecast investors would be paid no more than half their initial outlay in the event of any restructuring of debt.
S&P lowered its long- and short-term sovereign credit ratings on Greece to BB+ and B, respectively, from BBB+ and A-2. The outlook is negative.
“Medium-term financing risks related to the government’s high debt burden are growing, despite the government’s already sizable fiscal consolidation plans,” S&P said in an e-mailed statement today. “Our updated assumptions about Greece’s economic and fiscal prospects lead us to conclude that the sovereign’s creditworthiness is no longer compatible with an investment-grade rating.”
Greek Prime Minister George Papandreou last week was forced to activate a €45 billion ($60 billion) package of emergency loans from the euro region and the International Monetary Fund, after the country’s soaring borrowing costs made it difficult to finance its debt in the markets. Concern about Mr. Papandreou’s ability to trim the euro region’s biggest deficit has fueled concern of a possible default.
“We assigned a recovery rating of ‘4’ to Greece’s debt issues, indicating our expectation of ‘average’ (30%-50%) recovery for debtholders in the event of a debt restructuring or payment default,” S&P said in the statement.
