S&P puts stricken Greece in selective default

Standard & Poor's (S&P) has cut Greece's long-term ratings to 'selective default', making it the second credit agency to push ahead with a widely anticipated downgrade after the country announced a bond swap scheme to lower its debt.

'We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs),' S&P said.

Greece's credit rating may be raised to the more speculative 'CCC' category once its debt exchange has taken place, but S&P warned that in the meantime the country's retroactive insertion of CACs, which force losses on investors who do not voluntarily sign up to the offer, altered the original terms of the affected debt and made the swap a distressed debt restructuring.

Greece officially launched the bond swap on Friday, and under the deal bondholders will take losses of 53.5% on the nominal value of their Greek holding, with actual losses estimated at around 74%.

S&P said if enough bondholders did not accept the bond swap offer, Greece would in the short term face an outright default.

Greece's finance minister shrugged off the dpwngradre, however, following its announcement late on Monday evening.  Ministers said that S&P's decision to put Greece into selective default had been anticipated and pre-announced, with all of its consequences already planned for.