Fitch declared on Friday that Thursday’s eurozone deal for a second Greek bailout means the rating agency will place the country in ?temporary default.?
“The proposed debt exchange implies a 20 percent net present value loss for banks and other holders of Greek government debt,» Fitch said in an e-mailed statement.
“An exchange that offers new securities with terms that are worse than the original contractual terms of the existing debt and where the sovereign is subject to financial distress constitutes a default event.?
Still, the US-based agency pledged to give Greece a higher «low speculative grade» after its bonds had been exchanged and said Athens now had some hope of tackling its debt mountain, which most economists still expect to force a deeper restructuring in the future.
The deal, set to run up to 109 billion euros, will include participation from the private sector worth 37 billion euros.
Maturities of loans from the European Union and the International Monetary Fund are set to be extended from 7.5 years to 15 or even 30 years, while the interest rate will go down from 4.5 to 3.5 percent.
“Fitch considers the nature of private sector involvement… to constitute a restricted default event,» said David Riley, head of Sovereign Ratings at Fitch.
“However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces,» he said.
Riley added that if the Irish and the Portuguese economies are not on a steadily sustainable course in 2013, when they will both need to obtain credit from the markets, Fitch will incorporate into the two states’ assessments the precedent set by the participation of the private sector in the Greek package.
Fitch’s decision was widely expected given the participation of the private sector in the new rescue package for Greece.
On Thursday the President of the European Council Herman Van Rompuy and the President of the European Central Bank, Jean-Claude Trichet had stressed that the participation of the private sector is voluntary, which was meant to avoid classifying Greece’s state as default.