Four Notch Moody's Downgrade Of Greece To Ba1 From A3, Confirms Country Is Junk
Full Moody's report:
London, 14 June 2010 -- Moody's Investors Service has today downgraded Greece's government bond ratings by four notches to Ba1 from A3, reflecting its view of the country's medium-term credit fundamentals. Today's rating action concludes the review for possible downgrade, which Moody's initiated on 22 April 2010. Moody's has also downgraded Greece's short-term issuer rating to Not-Prime from Prime-1. Greece's country ceilings for bonds and bank deposits are unaffected by the review and remain at Aaa (in line with the Eurozone's rating). The outlook on all ratings is stable.
"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package. The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels," says Sarah Carlson, Vice President-Senior Analyst in Moody's Sovereign Risk Group and lead analyst for Greece. "Nevertheless, the macroeconomic and implementation risks associated with the programme are substantial and more consistent with a Ba1 rating."
Moody's believes that the Eurozone/IMF support package has sheltered the Greek government from the markets while it enacts the very ambitious fiscal austerity measures and structural economic reforms stipulated by the package. These have the potential to restore market confidence, depending on the effectiveness of the government's execution, and place the country on a more stable debt trajectory. The rating agency's base-case scenario envisions Greece implementing the policy changes it needs to stabilise its debt-to-GDP ratio at around 150% by 2013, and reduce its debt burden, defined as the interest payment/revenues ratio, gradually thereafter (expected at 20% in 2014). Should the economy respond positively to the competitiveness-enhancing structural reforms, debt stabilisation could be achieved earlier.
"There is considerable uncertainty surrounding the timing and impact of these measures on the country's economic growth, particularly in a less supportive global economic environment," says Ms Carlson. "This uncertainty represents a risk that leads Moody's to believe that Greece's creditworthiness is now consistent with a Ba1 rating, a rating which incorporates a greater, albeit, low risk of default."
Moody's outlook on Greece's ratings is stable, reflecting the substantial probability that the rating will not change over the next 12 to 18 months. The key factors that will influence the rating agency's view will be the performance of the Greek economy, especially that of GDP and tax revenues. Information on these developments will take some time to accumulate and may prove to be either credit positive or negative.
For further information, please see Moody's Special Comment "Key Drivers of Greece's Downgrade to Ba1" available on www.moodys.com.
Moody's previous rating action on Greece was implemented on 22 April 2010, when the rating agency downgraded Greece's rating to A3 and placed it under review for further downgrade.
The principal methodology used in rating the government of Greece is "Moody's Sovereign Bond Methodology", published in September 2008, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.