Rating cut on Greek bonds lands them in junk territoryStandard & Poor’s also downgrades four lenders due to exposure to gov’t debt
Ratings agency Standard & Poor’s (S&P) downgraded Greek bonds into junk territory yesterday, citing concerns about the country’s ability to move ahead with the reforms needed to slash its massive debt. S&P cut the rating by a full three notches to BB+, the first level of speculative, or junk, status. The outlook is negative, meaning the agency could downgrade Greece again. «[This] results from Standard & Poor’s updated assessment of the political, economic and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory,» S&P said. The downgrade put Greece on par with Romania and below Kazakhstan, Hungary and Iceland. S&P also assigned a recovery rating of 4 to Greece’s debt issues, indicating its expectation of «average» (30-50 percent) recovery for debtholders in the event of a debt restructuring or payment default. The agency also lowered its ratings on four Greek lenders, including National, to junk. S&P lowered the long-term counterparty credit rating on National Bank three steps to BB+, the highest junk rating, from BBB+. Eurobank, Alpha Bank and Piraeus Bank all had their long-term ratings cut three levels to BB from BBB and their short-term ratings to B from A2. The outlook for all the ratings is negative, S&P said. «Greek banks are directly exposed to the sovereign’s deteriorating credit quality through their large portfolios of Greek government debt,» S&P said. «In addition, the deteriorating economic conditions that we expect through 2010 are likely to lead to tougher operating conditions than those we previously incorporated.»