S&P lowers Greek debt rating

Ratings agency Standard & Poor's further lowered Greece's credit rating late on Monday from "CC" (defined by S&P as "highly vulnerable") to "Selective Default."

S&P said the further downgrade, with Greek bonds already holding what investors often call "junk status," stemmed from an action by Athens that amounted to the beginning of a "distressed debt restructuring." It said that the Greek government last week had retroactively added clauses in part of its debt agreement that diminished the bargaining power of bondholders.

The Greek parliament last week voted to make possible a debt swap with private bondholders that formed the core of Athens' 130-billion-euro bailout from the EU and IMF. The swap, in which private investors exchange bonds for lower-value debt, slices 100 billion euros ($132 billion) off Greece's debt.

The deal is to be underpinned by collective action clauses (CACs), under which bondholders of certain packages of debt are bound to accept revised payment terms, provided that a quorum of fellow bondholders agree to them.

"In our opinion, Greece's retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring," S&P said in a statement.

rc/msh (AFP Reuters)