emg home
Brief takeover of radio station by anarchists; 20 arrested No terms for troika's return to Athens, Commission says Tax administration refuses to cancel debts Dinar further strengthens, RSD 103.7 per euro RS police arrests one suspect Tadic,Josipovic,BiH Presidency to meet in February Ljajic in The Hague, to discuss Seselj's condition Jumbo reports 1.0 pct increase in H1 sales Greece:Exports return to rise in Nov. 2011, imports drop further Turkish aircraft enter Athens FIR Turkish Air Force helicopter flies over Greek islet of Ro Greece: Credit to private sector remained negative in November Petrom and EEPRL start deepwater drilling in Black Sea Major oil companies in Romania, slapped with fines of over 205 million euros Orka Holding is new owner of three Macedonian dailies Greece close to bond holder deal Gerard Gallucci: North Kosovo issue may be resolved in 2012 Macedonia and Kosovo have no open political issues McNamara: President Obama to exert leadership for Macedonia's admission to NATO Greek Minister rules out mass public-sector lay-offs Diplomats: Greece pushing for delay on Iran JASPERS technical assistance extended to Croatia ahead of EU accession Kosovo: Risk of radical Islam, says ambassador to Italy Croatia - Slovenia: EC will submit list of arbiters in second half of January Croatia: New parliament to begin first regular session on Jan 18 Bulgaria’s exports on the rise, National Statistical Institute says Tadic: KiM solution lies in international arena Josipovic did not congratulate RS Day to Dodik Bulgaria forwards Horseshoe plan data to Germany MUP: Weapons found in Borik hall ahead of jubilee Dzombic: RS will assist Kosovo Serbs Self-Determination to block cars from Serbia EU ministers to discuss Serbia on January 23 Gordon: No reduction or withdrawal of US troops Krasic: Seselj was clinically dead Dialogue on Kosovo to continue at end of January TV Avala strikers meet with RRA Council and RATEL

FT.com: Main rating agencies set to signal default

22. July 2011. | 08:34

Source: FT.com

Author: David Oakley

Although all three rating agencies were not commenting on Thursday, strategists say Standard & Poor’s is likely to put Greece on selective default, while Fitch will follow a similar route and put the country on restricted default, which is the same thing.

One thing is likely after this week’s negotiations in Brussels: Greece will become the first western developed world country to default in more than 60 years.

Strategists expect all three main rating agencies to determine that Greece has defaulted, because bondholders will suffer losses whatever plan policymakers decide to adopt involving private creditors. The options are debt exchanges, rollovers or buy-backs.

Although all three rating agencies were not commenting on Thursday, strategists say Standard & Poor’s is likely to put Greece on selective default, while Fitch will follow a similar route and put the country on restricted default, which is the same thing.

Strategists assume Moody’s will announce that Athens is in default, even though the agency does not have a specific default rating.

The terms “selective” and “restrictive” default mean Greece as an issuer will default, but only some of its bonds will be downgraded. Bonds that are not affected by whatever private creditor plan is used will not be defaulted.

An issuer default would normally mean that the European Central Bank would not be able to accept Greek bonds as collateral for loans. That development would bring the entire Greek banking system, which relies on the ECB to fund itself, to a standstill, presenting a serious threat of contagion to other banks and bond markets across the eurozone. That is why Jean-Claude Trichet, the ECB president, has for weeks rejected the idea of a short-term or selective default.

For this reason, with the default scenario likely, the ECB is expected to make Greece a special case and waive its rules that do not allow it to accept defaulted bonds as collateral.

Many strategists say a default may not have a big effect on the market as Greece would only default on a temporary basis. Both Standard & Poor’s and Fitch are likely to upgrade the country’s rating back to triple C, a low junk-grade status, once the debt exchange, rollover or buy-back has been initiated to reflect a forward-looking view of Athens, with its reduced debt burden.

However, the euro fell sharply at one point on Thursday after Jean-Claude Juncker, the head of the group of eurozone finance ministers, said Greece would suffer a selective default.

Underlining the difficulties in making predictions on market moves, Greek bonds rallied despite the comments because of relief that policymakers appeared ready to take decisive action.

The other key point is that default is not the same thing as a credit event or a pay-out in credit default swaps, which insure investors against bond defaults. A credit event is not likely to be triggered, say most strategists.

This is because the International Swaps and Derivatives Association (Isda) is expected to rule that the action on Greece is voluntary and does not obligate all investors to take part. Even if a credit event was triggered, Isda say the overall pay-out would only be $5bn, which they say would have little effect on the market or the balance sheets of the banks.


My Web

Enter text:


09. January - 15. January 2012.