Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said the terms of Greece’s debt restructuring and the European Central Bank’s move to isolate itself from any resulting losses may make it harder for other indebted euro nations such as Portugal to raise financing.
“Some of the decisions that have been taken recently may make re-accessing the capital markets harder, rather than easier,” Kraemer said in an interview with Bloomberg Television’s Linda Yueh in London today. “Many of these decisions may actually make it harder for countries like Portugal to return to the markets.”
Greece’s credit ratings were cut yesterday to “selective default” by S&P after the Mediterranean nation negotiated the biggest sovereign-debt restructuring in history. The ECB has immunity to the losses imposed by the bond-swap plan, designed to trim Greece’s debt burden by 106 billion euros ($143 billion) and enforced by the threat of retroactive collective action clauses that prevent holdouts. Kraemer said officials may apply the same terms to any future sovereign restructurings.
“These are additional risks,” he said. “Investors probably would want to see these compensated through higher yields and higher coupons, which in turn makes it harder for the sovereigns to embark on a sustainable debt trajectory.”
The ECB swapped about 50 billion euros of Greek bonds for new securities, identical to the old ones in every way save for identification numbers. The switch makes the ECB senior to other investors, exempting it from the swap Greece negotiated as it seeks to reduce national debt to 120 percent of gross domestic product by 2020 from 160 percent last year, and to meet the terms of a 130 billion-euro international bailout.
The time Greece’s credit rating will stay in “selective default” may “be very short,” said Kraemer, who added it could be resolved by “the middle of March.”
S&P would then “remove the selective default indication and assign a forward-looking credit opinion on Greece again,” he said. “It could be in the single B or the C categories.”
Still, “it is certainly a possibility given how high the debt ratio will be for Greece even after the exchange” that the country may default again, Kraemer said.
S&P’s BB credit rating on Portugal “indicates that the possibility of a restructuring is not merely theoretical, but could occur,” he said. “It’s not the base case, but it could occur for any sovereign that is under pressure.
“The challenges for Portugal are substantial,” he said.
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