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Private-Sector Requirement May Hamper Portugal, Moody’s Says

July 5 (Bloomberg) -- Anthony Thomas, a senior analyst at Moody’s Investors Service in London, commented on the possibility that private-sector owners of Portugal’s government bonds may be asked to participate in a bailout of the country as a condition for another European Union rescue. Thomas spoke in a telephone interview.

Moody’s cut Portugal’s long-term bond rating today to Ba2, or junk, from Baa1. The outlook is negative.

On private participation in a Portugal bailout:

“Private-sector participation under a support program to a fiscally stressed country may be considered a distressed exchange, and therefore a default under Moody’s definition, but we would have to see exactly what is proposed.”

“The European Union’s approach is evolving. Clearly nothing has been finalized. But from what we can see, it’s not so much that we don’t think they’re going to provide additional support, but a pre-condition of that additional support could very well be private sector creditor participation.”

“Obviously that’s very significant because not only does it affect current investors, but it is likely to discourage new private-sector lending going forward, and therefore reduce the likelihood that a country like Portugal will be able to regain access to the capital markets at a sustainable cost.”

On Portugal’s budget deficit:

“There are concerns that Portugal will face considerable challenges meeting its deficit-reduction target.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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