Fitch cuts Greek rating to near default

Ratings agency Fitch has 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.

Fitch said that Greece would be designated as having technically defaulted after the bond exchange is formalised, but the new bonds would be give a new rating.

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 further downgrade to a “restricted default” when the bond swap has been 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 the rating would factor in the country’s economic prospects and new debt profile.

Mr Rawkins added that the current process of downgrades was a largely procedural one, following the path laid out by the agency in June. Ratings, which give an estimate of the capacity of a creditor to repay debt, usually serve as a guide to investors.

Eurozone finance ministers agreed a €130bn rescue plan for Greece on Tuesday to avert a messy default, including a bond swap to shave €100bn off Greece’s debt burden.

Bondholders will take losses of 53.5% on the nominal value of their Greek bonds as part of the swap, with actual losses put at around 74% in real terms.

The ECB 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 which will come in the form of EFSF bonds. Those bonds will be passed to ECB and put into a special account in case there are any losses on collateral during the short window of the bond swap.

Meanwhile, thousands of protesters angry at punishing spending cuts poured into Athens’ central Syntagma Square yesterday as Greek lawmakers rushed to pass laws needed to secure payment of a second bailout for the debt-laden country.

Lawmakers set to work on a flurry of measures demanded by eurozone states in exchange for the €130bn rescue package, endorsed by finance ministers on Tuesday after hours of tortuous negotiation in Brussels.

Dutch Finance Minister Jan Kees de Jager, most vocal among mistrustful northern creditor nations, kept up a barrage of scepticism about Athens’ ability to meet its reform commitments.

— Reuters