Moody's Downgrades Greek Debt On Increased Grexit Risk -- Barron's Blog

        By Dimitra DeFotis
        Citing the lack of progress in debt negotiations between Greece and creditors, Moody's Investors Service downgraded the Greek government bond rating after the U.S. market close Wednesday.
        Moody's -- and other credit rating agencies -- already rate Greek sovereigns as junk. So Moody's downgrade to Caa2 from Caa1 moved Greek sovereigns credit further into "junk" territory. The downgrade applies to debt issued on private-sector terms only. Concurrently, Moody's also lowered Greece's local- and foreign-currency bond ceilings to B3 from Ba3, which reflects "increased probability that Greece may exit the euro area in the event of a sovereign default."
        Moody's listed the following drivers for the downgrade, following several months of ongoing review:
        1) "The high uncertainty over whether Greece's government will reach an agreement with official creditors in time to meet upcoming repayments on marketable debt." (See our post in which J.P. Morgan Asset Management said there is a 50% risk of a Greek default, with a calendar of important dates for Greek payments through the June 30 bailout expiration.)
        2) "The significant implementation risks of a follow-up, medium-term financing programme even if an agreement is reached, given the weakened economy and a fragile domestic political environment."
        Moody's added this dire assessment:
        "Negotiations between official creditors ( European Financial Stability Facility, International Monetary Fund, European Central Bank and European Commission) and the Greek government appear to have achieved little over the past two months. The Greek government and its official creditors remain far apart on key objectives, with no immediate prospect of agreement being reached on a new financing package. Both sides have reiterated their desire to reach an agreement that would avert a Greek default, and there are indications that the process has taken a new sense of urgency, with a change of negotiators on the Greek government side. However, Moody's believes that the final outcome will be driven primarily by political decisions both at the European level and in Greece. As such, the outcome of these decisions is highly uncertain and the potential for a policy accident resulting in Greece defaulting on its marketable (or commercially traded) debt, including that held by the ECB, has risen. In Moody's view, the risks to bondholders are appropriately reflected by a Caa2 government bond rating, which is historically associated with a roughly one in four probability of default over a two-year horizon.
        Amid these faltering negotiations, the economy continues to face severe liquidity constraints. Greece's ability to finance its budgetary expenditures and debt repayments has been under pressure since the official sector programme went off track last year."
        Greek bank stocks were mixed Wednesday, but have mostly rallied this week: shares of Piraeus Bank ( BPIRY) are up the most this week at 16%, followed by shares of the National Bank of Greece ( NBG), up 13%. Eurobank Ergasias ( EGFEY) is up nearly 11% this week, and shares of
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        (END) Dow Jones Newswires

        April 29, 2015 18:15 ET (22:15 GMT)

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