Greek bonds thus remain a highly speculative investment. Previously, S&P had declared a partial credit default ("selective default").
The agency had already announced in march that it would give greece a slightly better rating after the completion of the bond swap. Greece had completed the exchange of bonds not issued under greek law only last week. In the case of bonds under international law, the exchange period was repeatedly extended.
The outlook for the new rating is stable, it continued. This meant that the credit rating could not be changed for the time being. In its explanatory memorandum, S&P refers to the commitment of the government in athens to an improvement in the fiscal situation. However, he said, the country continues to face rough economic and political challenges.
A total of 199 billion euros in government bondholders had participated in the bond swap. Target was 205.5 billion euros. The debt cut enabled greece to reduce its national debt by almost 107 billion euros in one fell swoop. The bonds that had not yet been exchanged were repaid by the next payment date on 15 june. May is considered a default. If these bonds were serviced, the rating for these securities would also be upgraded to CCC.
The bond swap has eased short-term financing pressures, according to S&P. Greece’s debt burden remains high, however, and the country has been in recession for years. Implementation of the government’s austerity and reform program is threatened by the continuing decline in gross domestic product. S&P expects a further decline in economic output of around five percent this year. Last year, the greek economy shrank by almost seven percent.
S&P expects the economy to recover only in the medium term, once the structural reforms have been implemented. Social pressure is likely to increase. A further risk was posed by the bonds issued on 6. May upcoming parliamentary elections. Currently, observers expect no party to win an absolute majority in parliament. In addition, parties that reject the reform and austerity program were allowed to gain support.
According to S&P, a credit rating upgrade is conceivable if the greek government meets the requirements of the troika of the international monetary fund (IMF), the european central bank (ECB) and the EU. However, if a further default for private investors becomes apparent, S&P will lower the rating again.
With fitch, one of the major U.S. Rating agencies had already raised greece’s credit rating in response to the debt cut. The creditworthiness of the euro member was raised by fitch by four notches from "restricted default" in mid march ("RD") on "B" increased. The rating agency moody’s, on the other hand, has not yet raised its rating. There, greece continues to have the worst grade of "C" (default).
Since may 2010, the highly indebted and crisis-ridden greece has been dependent on international aid funds because it can no longer refinance itself on the free capital market.