S&P cuts Greece to 'selective default'

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Ratings firm Standard & Poor's on Monday cut the credit rating of Greece to ‘selective default’ after banks agreed to write off more than half of their Greek debt holdings in a second EU bailout of the country.

The rating was lowered from S&P's already junk-level ‘CC’ grade for Greece, which has been seeking to avoid an outright default on its massive debt by negotiating a ‘voluntary" debt exchange with creditors.

But S&P said the terms Greece put in the tentative deal agreed last Tuesday, which amounts to a 53 percent writedown, forced the downgrade.

"We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on February 23, 2012."

A CAC binds all bondholders of a certain series to amended payment terms in the event that a certain quorum of creditors has agreed to the terms, S&P explained.

"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."

"We believe that the retroactive insertion of CACs will diminish bondholders' bargaining power in an upcoming debt exchange," S&P said.

Two days after the February 21 deal, the Greek parliament approved a law on the historic 107-billion-euro ($143 billion) debt writedown with private creditors, a key element in a new eurozone bailout plan for the country.

The government hopes that nearly all of its private creditors will sign up to the bond swap deal, allowing Athens to impose a collective action clause to force hold-outs to accept the swap and losses as well.