DBRS, Inc. has downgraded the Hellenic Republic’s long-term foreign and local currency issuer ratings to CC from CCC (high), and placed the ratings Under Review with Negative Implications. The short-term foreign and local currency issuer ratings are confirmed at R-5 with a Stable trend.
The rating agency said that the downgrade was prompted by the recent breakdown in negotiations between Greece and its creditors over the terms of a financial support programme that could ease Greece’s acute liquidity crisis.
“In the absence of financial support with near unconditional terms, DBRS views a Greek departure from the Eurozone and default on private sector debt as increasingly probable. If Greece and its creditors agree on financial support that guarantees Greece’s financing needs in the context of a stabilisation programme, DBRS would likely remove the ratings from Under Review with Negative Implications. Alternatively, if Greece misses a payment on Treasury bills or bonded debt held by the private sector, or enters a distressed exchange, DBRS would assign a D (default) or an SD (selective default) to the long-term or short-term ratings.”
In the absence of a programme, and lacking access to capital markets, financing sources available to the central government appear to be insufficient to meet its financing needs. Indeed, on June 30 Greece went into arrears on a loan repayment to the IMF of €1.6 bln. Unless new sources of financing materialise in the near term, DBRS expects Greece to miss additional payments.
“DBRS does not classify going into arrears on an official sector loan from institutions such as the IMF, the ECB or the European Financial Stability Facility (EFSF) as a default. Nor do we expect the missed IMF payment to trigger an acceleration of payments on EFSF loans to Greece. However, missing a payment signals a further deterioration in credit quality.”
On July 8 Greece plans to sell 26-week Treasury bills, on July 10 it must refinance €2 bln in Treasury bills, on July 14 it owes €85 mln on a Japanese samurai bond, and on July 17 it owes €72 mln in interest payments on a three-year bond.
