Greece Gets Triple Hooked: S&P Downgrades Country To CCC, Outlook Negative

Tyler Durden's picture

And there goes the EUR again. Furthermore, "Outlook Negative" on CCC means CC is next, then C, and lastly, D.


  • In our view Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece's official creditors, would result in one or more defaults under our criteria.
  • We are also of the view that risks for the implementation of Greece's EU/IMF borrowing program are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required by Greece's partners.
  • Accordingly, we have lowered Greece's long-term rating to 'CCC', while affirming its 'C' short-term rating and removing the ratings from CreditWatch. The outlook is negative.
  • The 'AAA' transfer and convertibility assessment for Greece, which applies to all members of the eurozone, is unchanged.
  • Our recovery rating of '4' for Greece also remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders. We have revised our recovery rating base case default scenario for Greece to incorporate two hypothetical restructurings: an extension of maturities, followed by principal "haircuts".

Rating Action

On June 13, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit ratings on Greece to 'CCC' from 'B'. The short-term rating was affirmed at 'C'. The ratings were removed from CreditWatch. The outlook on the long-term ratings is negative.

Standard & Poor's '4' recovery rating for Greece remains unchanged--indicating an estimated 30%-50% recovery upon default--and its 'AAA' transfer and convertibility assessment for Greece, which applies to all members of the eurozone, also remains unchanged.


The downgrade reflects our view that there is a significantly higher likelihood of one or more defaults, as defined by our criteria relating to
full and timely payment, linked to efforts by official creditors to close an emerging financing gap in Greece. This financing gap has emerged in part because Greece's access to market financing in 2012 and possibly beyond, as envisaged in the current official EU/IMF program, is unlikely to materialize.

This lack of access, in our view, creates a gap between committed official financing and Greece's projected financing requirements. Greece has heavy near-term financing requirements, with approximately €95 billion of Greek government debt maturing between now and the end of 2013 along with an additional €58 billion maturing in 2014.

Moreover, the downgrade reflects our view that implementation risks associated with the EU/IMF program are rising, given the increasingly complicated political environment in Greece coupled with its current difficult economic climate.

In Standard & Poor's May 9, 2011 press release on Greece, we stated that we could lower our long-term rating further if we concluded that risk of a distressed debt exchange had increased. While we believe that official eurozone creditors are likely to provide additional funding to help close the emerging financing gap, based on recent statements made by the German government ahead of the June 20, 2011 Eurogroup meeting, we believe some official creditors will see restructuring of commercial debt as a necessary condition to such additional funding. We believe that private sector burden sharing could take the form of a debt exchange offer or an extension of debt maturities. In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria. In that event, under our criteria, this would result in the rating on the affected instruments being lowered to 'D,' while Greece's credit rating would be lowered to 'SD'(selective default). We are also of the view that, even if official creditors do not adopt this approach at the next Eurogroup meeting, the likelihood of such an action over the next year has increased materially.

In our view, the continuing recession in Greece (with unemployment rising to 16.2% in March 2011, up from 11.6% in March 2010) partly explains the weaker-than-planned budgetary performance so far this year, which has yet to be addressed by the Greek government. We believe that this slippage is also to some extent due to the absence of broad political consensus supporting additional budgetary adjustments. As a result, we think that the execution risks of Greece's EU/IMF borrowing program have increased. We still expect that the Greek government will work to achieve this year's budgetary targets and start implementing the revised medium-term program agreed to with official creditors. However, we also believe that the recession could well persist into 2012 and thus may further erode internal political support for the revised EU/IMF program.

While we have lowered our long-term ratings on Greece to 'CCC', we have maintained a recovery rating of '4,' reflecting our estimation of "average" (30%-50%) recovery for holders of Greek government debt in case of default. However, we have revised our rating recovery base case default scenario for Greece to incorporate two hypothetical debt restructurings: the first (possibly occurring within the next 12 months as implied by the 'CCC' long-term rating), featuring an effective extension of Greece's debt maturities; followed by a second hypothetical restructuring (possibly occurring by 2013), incorporating principal "haircuts" with the aim of placing Greece's public debt burden, which by our estimate could then exceed 160% of GDP, on what the government and its official creditors might consider to be a more sustainable footing.


Greece's 'CCC' long-term credit rating reflects Standard & Poor's view that the risk of default under our criteria for full and timely payment within the next 12 months has increased significantly. Our negative outlook indicates that a downgrade to 'SD' could occur if Greece undertakes one or more debt restructurings or maturity extensions on terms that constitute distressed debt exchanges as defined by our criteria.

Conversely, if Greece's eurozone partners agree on a revised EU/IMF program that does not result in a default under our criteria for full and timely
payment and the revised EU/IMF program is complied with, our ratings on Greece could stabilize at the current 'CCC' levels, even taking into account the risk of a debt restructuring in the form of a principal "haircut" by 2013.

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toto's picture

What was  America's rating again?

Bob's picture

True, but there's still abundant hope that the sheeple here will enthusiastically surrender to "austerity."  Greece, not so much. 

SheepDog-One's picture

Theres about 100 million americans with rifles and a lot of ammo...I think they may be baking in 'austerity and surrender of the american people' a bit too soon.

Bob's picture

It's looking like the DC Clown Show will get it done "for them."  Dims blame Publicons, Barry blames "Mr. Market (Sir!)" and they'll all be so sad it "had" to be done . . .

But I agree it won't end well. 

Too bad taxing banksters into the stone age--since they're too well-connected to jail--isn't on the table.  We could be looking at very different prospects. 

agent default's picture

And whacks silver and commodities.  Another day in paradise I suppose.

RobotTrader's picture


Sovereign Debt problems re-emerge


Sell gold, buy dollars and Uncle Gorilla paper!!!

achmachat's picture

is this what you are observing, or is this what you personally do and would advise to poeple listening to you.

Sorry if I ask.. but with you, one never knows.

Bay of Pigs's picture

He's a fucking tool and a bold faced liar. 

SheepDog-One's picture

Should be an IDEAL trade for you Robo, since all youve ever done is trade ON PAPER anyway!

chrisd's picture

You were more fun when you posted pictures like your avatar all day

SheepDog-One's picture

Yea at least the pictures were some entertainment, now Robo just talks out of his ass all day about his paper trades.

Goofy Bastard's picture

I don't get the junks, it's clearly happening.  Not saying it makes true sense in the long-term, but it is happening.

SheepDog-One's picture

You want to sell gold and buy dollars? Go for it.

Goofy Bastard's picture

For someone nimble, that appears the be the short-term move.  I'd certainly be re-positioning back into Gold/Silver/Commodities after Helicopter Ben comes to the rescue.


It's one profitable way to play this.  If you're nimble...

DoChenRollingBearing's picture

I am not nimble.  So I just buy and hold physical (only) PMs.

topcallingtroll's picture

Dammit robo, you make getting junks look so easy.

Urban Redneck's picture

The lack of significant lasting rise in EURUSD must be causing many of TPTB to smack their monitors like sexually frustrated adolescents over the past few months.  Perhaps the End-of-QE® Viagra is losing its efficacy, or is perhaps that the rest of the world has awoken to the fact that - if the whole thing is gonna blow and wipe everyone out, they really don't want spend their last days in this monetary realm in coitus with the bearded one?

Jack Mehoff's picture

Should have been D for default.

Mr Lennon Hendrix's picture

They are on top of downgrading sovereign debt but could not see the housing crisis coming from a mile away.  What an agenda.

SheepDog-One's picture

Good point, theyre expert at downgrading foreigners, but clean flat out missed the biggest bubble implosion in history.

Seasmoke's picture

coming to a country near you

JonTurk's picture

Tyler, last week you were calling a breakout of 1.50 in EURUSD


you are slowly becoming like a Goldman Muppetshow

Tyler Durden's picture

Well that is certainly news to us. With the S&P correlating to the EURUSD 1:1, and with our expectation that the S&P will drop several hundred points before QE3 is unleashed, can you explain just where in this logical chain does the EURUSD hit 1.50 before QE3 is launched? (But yes, if the ECB surprisingly hikes rates to 2.0% in July, which it won't, you will certainly see 1.50). Then again we can see why one can be confused especially with Goldman's two parallel calls for EURUSD going above 1.55 and below 1.40 at the same time. Lastly, since ESL is apparently not TFL, here is our most recent commentary on the EUR: "The most recent CFTC Commitment of Traders report is out. As usual the
most interesting data can be found in the FX spec update which does not
disappoint. Just as we predicted, as the EUR surged over the past 14
days so did non-commercial net specs. The number which is through
Tuesday, probably increased even as the EUR got hammered over the past
24 hours, dropping 250 pips in two days. Expect the usual piling out
through the front door as specs bail once again. At that point the time
to buy the EUR will come

So... care to revisit?

SheepDog-One's picture

Only part I disagree with is the unleashing of QE3.  When the markets tank this time the 'QE3' much to the surprise of the CNBC audience will be the Treasury suddenly seizing all 401K's and pensions.

What did people think, the central banksters did all this to make sure moms and pops retirement at the luxury 'The Villages' would be fully funded and comfy? They can dream on, 3rd worlding and austerity is about to become harsh reality.

topcallingtroll's picture

You have worn your tinfoil hat for so long i believe it has melded into your skin. Might wanna see a doctor.

fuu's picture

Funny how things that were tinfoil hat worthy a few years ago now play out across the front pages.

DoChenRollingBearing's picture

You guys above best not be dissing the Tinfoil Hat Brigade!  New member in The Lunatic Fringe Battalion of the THB is getting ready for action!

Fanakapan's picture

Arffffffffffffff, I like that :)

Calmyourself's picture

I used to laugh at such nonsense then more and more start coming true.. Now when I look in the mirror, I think pretty, shiny and sadly so true. No, tinfoil has gone mainstream TCT, don't miss the Alcoa trade..

dwdollar's picture

Well... They have to keep the illusion.  If they do anything with 401K's it will be something that most will swallow as being good for their own selfish desires.  Otherwise, mom and dad stop dreaming and start hating.

Libertarians for Prosperity's picture

can you explain just where in this logical chain does the EURUSD hit 1.50 before QE3 is launched?.....

I think he might have been referring to this Twitter post by one of the "Tylers" although it was not last week, but six weeks ago:!/zerohedge/statuses/62814313685061632

EURUSD 1.4653 1.50 Next

Tyler Durden's picture

So a week before it ripped by 300 pips and hit 1.4940?

Libertarians for Prosperity's picture

touche...sort of.  

Because it conflicts with your suggestion today that we need QE3 before the EURUSD can hit 1.50.


Tyler Durden's picture

Short Term trades are just that. Trades (especially when late in April the market was working under the false assumption that JCT would proceed to announce several hikes in a row - something we predicted would not happen). There is nothing in the fundamental picture that supports EURUSD at 1.50 currently. Can it hit 2.00 on central bank buying just like in the past 30 minutes? Of course. Will that level be sustained? Of course not.

JonTurk's picture

just take a look at below post on COT where you suggesting "The technicals at this point indicate a break of recent EURUSD resistance in the 1.50 area is very much possible".

I am not trying to make a scene here as everybody can be wrong sometimes in this business, as Soros says: "a sustainable 60/40 success rate makes you a star trader"; but dude, you been spectaculary wrong at criticial junctures: you called 1:1 parity at 1.20 bottom last year and now you are calling a breakout of 1.50 at 1.47 level last week which infact seems like a medium term top.


come on...

Tyler Durden's picture

It is certainly very much possible. What's your point? As for parity, instead of making false statements, here is what we said on the topic of parity: "When the ECB said recently that a slide toward parity would be
tantamount to admitting defeat for the euro and the eurozone, we took it
somewhat seriously. Which is why we were rather surprised to see that
the biggest French bank, and by implication, organization which would
suffer massively should the eurozone implode, is out with a EURUSD
forecast that goes even beyond parity, and bottoms out at 0.98 by Q2
2011. As we have noted before,
it is the very same  European banks who are most interested in a
destabilized euro, as it would merely entail trillion after trillion in
ECB bailouts, providing quarterly bonus make whole packets for
all bankers involved. So, without further ado, here is BNP's thesis,
which just as easily could have come from Evans-Pritchard: "Now we are
convinced that EURUSD will have to remain weaker for longer and we
expect it to drift to 0.97 in Q3 2011. The competitive and wealth gap
within EMU will have to be closed to rescue the European project.
Peripheral Europe will be exposed to a significant deflationary shock
and asset transfers from core European countries will be required to
keep these countries and its financial system afloat." It kinda makes us
wonder whether the ECB may have been lying to us all this time."

Google is indeed your friend.

i-dog's picture

The week's not over yet........

Ferg .'s picture

Does anyone remember the days when a Greek downgrade was major news ?

SheepDog-One's picture

Now the bad news is not news, wait till the ensuing 'Watchoo talkin bout Willis we fixed Greece' then that will be noticed and much rejoicing.

Ferg .'s picture

Quite insane though how downgrades to European sovereigns don't seem to mean shit to the market anymore . 

SheepDog-One's picture

Nothin really means shit anymore, we've lurched sideways and going from world economic currency war into world hot shooting war. 

JonTurk's picture

after the double dip in Dollar Index, looks like the USD bull train is leaving the station. such a pity for the EUR bulls like Tyler...

SheepDog-One's picture

Well why dont you file a complaint and ask for your ZH membership fees to be refunded? Oh thats right, its free, so whiners are also free to take the walk.

JonTurk's picture

It is a free blog so I have a right to make critics here; but as sheeples (especially silver sheeples) like you don't know what a critic is, I say: run sheeple run :)

SheepDog-One's picture

Well I say youre a fucking jerkoff how about that?