Greek Credit Rating Raised at S&P After Debt Buyback Program

Greece had its credit rating raised by Standard & Poor’s after a debt buyback as the ratings company cited the “strong determination” of euro-area governments to keep the nation in the currency zone.

The grade was lifted from selective default to B- with a stable outlook, S&P said in a statement yesterday. It was cut to SD from CCC on Dec. 5 amid the buyback. The new grade is the highest Greece has had at S&P since June 2011, when it was cut to CCC from B.

“The stable outlook balances our view of euro zone member states’ determination to support Greece’s euro zone membership and the Greek government’s commitment to a fiscal and structural adjustment against the economic and political challenges of doing so,” the ratings company said.

European officials last week approved the payout of 49.1 billion euros ($65 billion) of loans through March from Greece’s bailout programs with the European Union and International Monetary Fund after receiving the results of the Greek bond buyback program. Under the plan, Greece agreed to pay 11.3 billion euros to buy back 32 billion euros of bonds, reducing its debt burden.

“Even after the buyback, Greece’s end-2012 net debt-to-GDP ratio of over 160 percent of GDP remains onerous,” S&P said in the statement. “Nevertheless, subject to Greece meeting program conditions, euro zone member states have said they would significantly improve official lending terms to the government.”

Ratings Analysis

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook this year, according to data compiled by Bloomberg. The longer-term average is 47 percent, based on more than 300 changes since 1974. This year, investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P.

Greek bonds have surged 85 percent this year, the best performance among 26 markets tracked by indexes from the European Federation of Financial Analyst Societies. The 10-year yield at 12.8 percent is about a third of its high this year, and its spread to benchmark German bunds has collapsed to about 11 percentage points, the least since April 2011.

S&P said that Greece’s deficit-reduction plan, which is based on tax increases, improved tax collection, privatizations, and government spending cuts, may still go awry.

“We believe these adjustments carry implementation risks given the projected further output contraction in 2012 and 2013, which will likely see social pressures persist,” S&P said.

To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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