Moody's declares Greece in default of debt

WASHINGTON - Moody's declared Greece in default on its debt Friday after Athens carved out a deal with private creditors for a bond exchange that will write off 107 billion euros (S$175.9 billion) of its debt.

Moody's pointed out that even as 85.8 per cent of the holders of Greek-law bonds had signed onto the deal, the exercise of collective action clauses that Athens is applying to its bonds will force the remaining bondholders to participate.

Overall the cost to bondholders, based on the net present value of the debt, will be at least 70 per cent of the investment, Moody's said.

"According to Moody's definitions, this exchange represents a 'distressed exchange,' and therefore a debt default," the US-based rating firm said.

For one, "The exchange amounts to a diminished financial obligation relative to the original obligation."

Secondly, it "has the effect of allowing Greece to avoid payment default in the future."

Ahead of the debt deal, Moody's had already slashed Greece's credit grade to its lowest level, "C," and so there was no impact on the rating.

Moody's said it will revisit the rating to see how the debt writedown, and the second eurozone bailout package, would affect its finances.

However, it added, at the beginning of March "Moody's had said that the risk of a default, even after the debt exchange has been completed, remains high."

Standard & Poor's downgrades Italy debt rating

WASHINGTON: Standard & Poor's on Monday downgraded Italy's sovereign debt rating, citing economic, fiscal and political weaknesses in the eurozone's third-largest economy.

The rating agency said it had downgraded Italian debt to "A/A-1" from a "A+/A-1+" grade because of "Italy's weakening economic growth prospects."

It added that Italy's weak governing coalition would "limit the government's ability to respond decisively" to events.

"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said in a statement.

Low labour participation rates, an inefficient public sector and modest foreign investment flows were cited as key drags on growth.

"In our view, the authorities remain reluctant to tackle these issues," the agency said.

S&P's rival rating agency Moody's has already indicated it is weighing its rating for Italy,
which is currently at Aa2, two notches below Moody's top triple-A rating.

Italy has tried to reassure investors by announcing a new austerity package which should see the country balance its budget by 2013.