When we said over two weeks ago that the second Greek bailout is Dead On Arrival, we were, as sometimes happens, just a little ahead of the curve. S&P has just confirmed that a "voluntary debt restructuring" would be characterized as an event of default from the rating agency's point of view, which is the most disastrous outcome, as it would impair the collateral held by the ECB and be the true catalyst for a liquidity freeze, while anything ISDA decides on whether Greek CDS is triggered and if a rating agency default is an ISDA determination Event Of Default, is almost completely irrelevant, as discussed in our CDS myth debunking post over the weekend.
Standard & Poor's reaffirmed a voluntary debt restructuring for Greece as currently foreseen by euro zone governments would likely be deemed a default, its head of European sovereign ratings told a German newspaper.
"Past experiences show that restructuring the debt of a country, whose creditworthiness is rated at CCC like Greece is currently, tend not to be voluntary and investors must sustain losses," Moritz Kraemer told Die Welt in an article due to be published on Tuesday.
Euro zone officials have told Reuters a second bailout plan for Greece is expected to fund Athens into late 2014 and feature up to 30 billion euros in aid from a voluntary private sector participation on the basis of the so-called "Vienna Initiative". S&P's Kraeemer said whether extending a bond's maturity voluntarily or not is of lesser importance.
"What's decisive is how does it compare to what was promised to creditors when they first invested their money," he said.
...and from Dow Jones:
"Past experiences show that restructuring the debt of a country, whose creditworthiness is rated at 'CCC' like Greece is currently, tend not to be voluntary and investors must sustain losses," Moritz Kraemer, head of European sovereign-debt ratings for S&P, told the daily.
Officials in the 17-state euro zone have expressed hope that private investors will take part in a mainly public rescue package for Greece, by voluntarily rolling over bonds. But under this "Vienna-style initiative," Kraemer said, whether to extend a bond's maturity voluntarily or not isn't the most important consideration.
"What's decisive is, how does it compare to what was promised to creditors when they first invested their money?" he told Die Welt.
The SS "We'll make it up as we go along" just hit the iceberg.