Fitch Ratings warned it would treat a voluntary rollover of Greece’s sovereign bonds in any rescue package as a default and would cut the credit rating, keeping pressure on European policymakers who intend to outline a new plan by the middle of next month.
Fractious eurozone finance ministers are trying to patch together a second aid package for Greece, with more official loans and, for the first time, a contribution by private investors of Greek government bonds.
“The essence of the problem ... is that Greece needs new money,” Andrew Colquhoun, head of Asia-Pacific sovereign ratings with Fitch, said at a conference in Singapore.
“Fitch would regard such a debt exchange or voluntary debt rollover as a default event and would lead to the assignment of a default rating to Greece,” he said.
Greece has rattled financial markets as Athens and European policymakers try to avert the first debt default by a eurozone country.
After two days of crisis talks in Brussels, eurozone finance ministers issued Athens an ultimatum, saying the government, parliament and broader society had until July 3 to approve new steps in order to get the next installment of the 110 billion euros (US$157.8 billion) in EU and IMF aid agreed in May last year.
A month ago, Fitch downgraded Greece’s credit rating three notches to “B+” and warned it could cut the rating further into junk territory. Standard & Poor’s cut Greece’s rating to “CCC” from “B” on Monday last week and warned that any attempt to -restructure the country’s debt would be considered a default. Moody’s has a “Caa1” rating on Greece’s sovereign debt, which implies a 50 percent chance of a default within three to five years.
Fitch said it also saw risks of a debt default in the US, whose top-rated bonds may suffer if the country doesn’t lift its fiscal borrowing ceiling, as several developed countries struggle to deal with increased debt built up during the global financial crisis.
Colquhoun reiterated that Fitch would place the US sovereign rating on watch negative if US Congress did not raise the federal government’s borrowing ceiling by Aug. 2. The US Department of the Treasury says Congress must raise the US$14.3 trillion debt ceiling by then to avoid a potential default.
If the US government misses an Aug. 15 coupon payment, Fitch would place the rating on restricted default. Still, Colquhoun said it believed the debt ceiling would be raised and a default would be avoided.
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