Rating’s agency Moody’s has cut Greece’s debt ratings by three notches to Ca, a notch above default, and has warned on Monday that chances of a default is now “virtually 100 percent”.
The bailout package agreed upon by the EU leaders last week will help Greece reduce its debt, but the country still faced austerity measures implementation and mid-term solvency risks.
“The announced EU programme along with the Institute of International Finance’s statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent”, Moody’s said in a statement.
“(The country’s) stock of debt will still be well in excess of 100 percent of GDP for many years and it will still face very significant implementation risks to fiscal and economic reform”, the statement added.
The EU bailout package has set a negative precedent for investors on future restructuring as they may refuse to accept a ‘haircut’ in the facing of an impending default.
“The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece”, Moody’s warned.
Debts with Ca rating are highly speculative in nature and are likely in, or very to default with a slim prospect of recovery of principal and interest, the agency clarified. However, the outlook is developing.
Other ratings agency Fitch and Standard & Poor’s have already downgraded Greece to CCC, one notch higher than Moody’s latest rating.