Greece?s sovereign credit rating was cut three steps by Moody?s Investors Service, which said the European Union?s financing package for the debt-laden nation implies ?substantial economic losses? for private creditors.
Greece?s long-term foreign currency debt was downgraded to Ca from Caa1, the ratings company said in a statement in London today. Moody?s assigned a developing outlook to the ratings and said it will re-assess the credit risk profile of any outstanding or new securities issued by the Greek government after Greece?s debt exchange has been completed.
?The announced EU program along with the Institute of International Finance?s statement representing major financial institutions implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent,? Moody?s said.
The financing package will consist of 109 billion euros ($157 billion) from the euro region nations and the International Monetary Fund. Financial institutions will contribute 50 billion euros after agreeing to a series of bond exchanges and buybacks to cut Greece?s debt load.
Banks will voluntarily agree to write down the value of their Greek securities by 21 percent as part of the bond exchange and debt buyback program, the Institute of International Finance said July 22.