S&P: Greece Could Face Ratings Cut

Standard & Poor's placed Greece's long-term sovereign credit rating on CreditWatch with negative implications.
By Michael Baron ,

NEW YORK (

TheStreet

) -- Standard & Poor's said late Thursday it could lower Greece's long-term sovereign credit rating by as many as two notches once it evaluates how the European Monetary Union's new facility for government bailouts will affect private debt holders.

The New York-based ratings agency placed the Greek government's "BB+" rating on CreditWatch with negative implications in the wake of the EMU's adoption of the European Stabilization Mechanism, or ESM, which becomes effective in July 2013. It noted that this decision "reflects our belief that Greece might be a future recipient of ESM funding."

S&P's main concerns are that bailouts made under the ESM would receive "preferred creditor" status, thus subordinating any "non-official" holders of the country's sovereign debt, and that politics could enter into the equation for future ESM bailouts.

"We believe that the multilateral political prerogative to trigger private debt restructuring could be subject to political rather than objective financial considerations," S&P said in its statement. "We also believe that it is possible that European policymakers might, in the midst of a future crisis, make uncoordinated and even contradictory statements, potentially causing market distortions and jeopardizing funding access of individual sovereigns."

The agency said it expects to make a decision about the status of Greece's long-term rating within three months. It made clear it could still affirm the rating but said if its views about how the ESM will function are "borne out" that it could "lower our long-term rating on Greece, probably by one, but not likely more than two notches."

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Written by Michael Baron in New York.

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