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Greece Debt Exchange Would Be a Default, S&P’s Chambers Says

Jan. 24 (Bloomberg) -- Greece is likely to default in the first half of this year, an event that’s poised to leave the country with a “very high” debt burden, according to John Chambers of Standard & Poor’s .

The country is pursuing talks on a debt swap with private creditors that would lower Greece’s debt to 120 percent of gross domestic product by 2020, the Finance Ministry said yesterday. Euro governments have sought to fill a deeper-than-expected hole in Greece’s finances by having investors accept a lower interest rate on exchanged bonds.

“The very least that would happen in Greece is an exchange that would qualify by our criteria as a default,” Chambers, managing director of sovereign ratings at S&P, said today at the Bloomberg Link Sovereign Debt Conference in New York. “Their debt burden is still going to be very, very high. So their rating post-default will still be a low rating.”

Greece has had a CC long-term credit ranking, 10 steps below investment quality, with a negative outlook since July, according to data compiled by Bloomberg. The New York-based credit rating company downgraded nine countries including France, Italy and Spain on Jan. 13.

“The key here is for the rest of the euro zone to keep to the plans that they’ve enunciated,” Chambers said. “It’s going to be a long slog.”

Credit Default Swaps

As European Union finance officials met in Brussels today, efforts to shore up Greece were flanked by headway on a German-inspired deficit-reduction treaty and indications that a cap on rescue lending might be boosted to 750 billion euros ($973.5 billion) from 500 billion euros.

French government debt has lost 0.15 percent this year, while bonds of Italy gained 4.14 percent and those of Spain have gained 0.02 percent, according to Bank of America Merrill Lynch indexes. Yields on Greek 10-year bonds have fallen to 33.4 percent from a high of 36 percent on Dec. 21.

While “the contemplated restructuring isn’t likely to be sufficient to make Greece a viable, going economic concern in the future,” the decision not to trigger credit-default swaps may also be a form of “collateral damage” from the nation’s default, said Thomas Cooley, an economics professor at New York University.

“The future viability of that market is really undermined by what’s been going on around Greece,” Cooley said at the conference.

Irish Debt

The EU and International Monetary Fund had to bail out Greece, Portugal and Ireland after their borrowing costs for 10-year securities rose to about 7 percent amid concern their debt levels were unsustainable relative to their economies.

Irish government debt is an example of the opportunities to “cherry pick” assets while investors are panicked, said Michael Hasenstab, manager of Franklin Resources Inc.’s Templeton Global Bond.

“It was a big problem, very distressed, but they have all the right policy prescriptions,” Hasenstab said at the conference. “They took the tough medicine, they had social cohesion about a plan.”

Irish government bonds have gained 6 percent this year, Bank of America Merrill Lynch index data show.

To contact the reporters on this story: John Detrixhe in New York at; Michael McKee in New York at

To contact the editor responsible for this story: Dave Liedtka at

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