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S&P Threatens To Cut Greece Further Into Junk Territory, Sees One-Two Notch Downgrade Chance
S&P flexes its chicken wings, and nobody cares. After all it's not like a CCC- rated Greece will not have access to the global Bernanke put...
Overview
- We are assessing the credit implications of the proposed European Stability Mechanism (ESM) that may govern EU sovereign bonds beginning in July 2013.
- Specifically, we believe that assigning "preferred creditor" status to future official lending via the ESM could be detrimental to the ability of non-official holders of sovereign debt to be repaid.
- Since the details of the plan are still emerging, we are placing our 'BB+' long-term sovereign credit rating on Greece on CreditWatch with negative implications.
- The negative CreditWatch placement reflects our belief that Greece might be a future recipient of ESM funding.
Rating Action
On Dec. 2, 2010, Standard & Poor's Ratings Services placed its 'BB+' long-term sovereign credit rating on the Hellenic Republic (Greece) on CreditWatch with negative implications. Standard & Poor's has also placed its 'BB+' rating on the individual debt issues of the Greek government on CreditWatch with negative implications, reflecting both the action on the sovereign credit rating and the possibility of a downward revision of our '4' recovery rating on this debt.
At the same time, Standard & Poor's affirmed its 'B' short-term sovereign credit rating on Greece. The 'AAA' transfer and convertibility Assessment is unchanged.
Rationale
On Nov. 28, 2010, the European Council endorsed, in principle, the permanent institutional set-up for European Monetary Union (EMU) sovereign borrowing that is to follow the closure of the European Financial Stability Facility (EFSF; AAA/Stable/--) in June 2013. The financial endowment of the ESM remains to be determined, but we understand that the ESM's structure will be based on that of the EFSF and that the ESM will provide financial support through emergency loans under policy conditionality. We have identified what we consider to be two key differences between the ESM and the EFSF, however:
A key difference between the current EFSF and the contemplated ESM lies in the apparent ability of the ESM's sovereign shareholders to trigger a debt restructuring on a case-by-case basis. We understand that this restructuring would potentially include private bondholders holding bonds issued by those EMU sovereigns declared insolvent (based on the application of as yet undisclosed criteria or procedures). We believe that the multilateral political prerogative to trigger private debt restructuring could be subject to political rather than objective financial considerations. We also believe that it is possible that European policymakers might, in the midst of a future crisis, make uncoordinated and even contradictory statements, potentially causing market distortions and jeopardizing funding access of individual sovereigns.
Notably, the public statement by the Eurogroup finance ministers envisions that any post-2013 lending by the ESM will benefit from "preferred creditor" status, effectively subordinating non-official holders of sovereign debt to the ESM. We believe that such subordination could hurt the prospects of timely and full repayment of non-ESM sovereign debt and would likely lower recoveries on such non-ESM sovereign debt, since the share of preferred creditors in the total debt stock will increase--all else being equal--in the transition from the EFSF regime to the ESM.
The ESM proposal furthermore outlines the inclusion of standardized collective action clauses (CACs) from June 2013 onward. Under the CACs, a qualified majority of bondholders will be able to agree to a legally binding change to payment conditions, without holdouts jeopardizing the process. Our assessment of past sovereign debt restructurings leads us to believe that the presence or absence of CACs does not, as a general matter, appreciably affect incentives to default.
We believe that more details about the ESM will emerge in the near future, but expect that, on balance, the ESM could have negative implications for the probability of nongovernmental holders of sovereign debt being paid in full and on time. Before coming to that conclusion, we will analyze the particulars of the ESM that will eventually be presented to national governments or parliaments for ratification.
In our view, the possible negative implications will not affect all EMU sovereigns equally, but will fall predominantly on those that may be more likely to request ESM support in the future. This group of governments could include the Republic of Ireland (A/Watch Neg/A-1), which is already subscribing to a multilateral financing package of €85 billion. It could also include the Republic of Portugal (A-/Watch Neg/A-2), which capital-market investors currently perceive as another potential candidate to access official funding. We consider that Greece might also be a candidate to receive additional financing through the ESM, above and beyond the financing it has already received from the International Monetary Fund (IMF) and bilateral eurozone government bonds. This explains our placement of Greece on CreditWatch with negative implications, alongside Ireland and Portugal.
We recognize that the likelihood of Greece accessing ESM funding may have lessened somewhat by the simultaneous decision to extend the grace period on the IMF and EU financial package to 2015 and the repayment period to 2021, although at a slightly higher interest rate of 5.8% (versus 5.5% previously). Even so, we consider that Greece is a potential borrower from the ESM and that non-official holders of sovereign debt may therefore be affected.
CreditWatch
Standard & Poor's aims to resolve the CreditWatch placement within the next three months, after analyzing the final details of the planned ESM--which we believe will become available in the coming weeks--and assessing its implications for non-official holders of sovereign debt. We could affirm the ratings on Greece if our current expectations about the impact of subordination and undefined restructuring triggers are not borne out by events after we have analyzed the full ESM proposal. If, on the other hand, our views are borne out, we could lower our long-term rating on Greece, probably by one, but not likely more than two notches, depending on the details of the ESM. In light of those same details, within the Credit Watch period indicated we may also reconsider our '4' recovery rating on Greece's individual debt issues, possibly leading to a downward revision. (The current '4' recovery rating indicates an expectation of "average" [30%-50%] recovery for debtholders in the event of a debt restructuring or payment default.)
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Let me guess. Greece has been downgraded like that since grade school.
Gee, no wonder gold was bludgeoned today.
Somebody always knows something before it is announced.
Another profitable day for the GS and JPM short-sellers.
Any accident that JPM was up 3% today?
Over the long haul, the casino always wins. No exceptions.
I'd twirl my moustache and tie you to train tracks but you kind of get off on that.
"F--k my victims. I carried them for twenty years, and now I'm doing 150 years."
— To an inmate who expressed concern for the investors defrauded by Madoff
Speaking of bludgeoned your cancer stick company MO has seen better days.
Especially rigged casinos
Bludgeoned?,1% is bludgeoned?.
Rates are screaming time for Ben to hit the crash button
Greece is the word, that you've heard..
Serious pain being applied across the globe - Fed has somebody in a head lock another in a leg lock, and multiple others by the hair. Who is going to scream uncle first?
However, as noted above, credit ratings when there is a IMF backstop for all aren't that big a deal.
Just check S&P 500 at 1222, Oil at $90, 10yr T's at 3%, Euro/dollar at 1.32
S&P 500 about to break out to new highs and run away on corporate earnings (to the moon)
If dollar strengthens any more S&P's going to look ridiculous pulling any further away
If dollar weakens it will prmote furhter hikes to oil, et cetera and could be really significant
T's rising any further will start to really hammer refi market, home sales / prices
Appears "somebody" is backstopping EU bond market…that somebody should show with transferrance of higher yields / weaker currency?
Dollar up or down now? If dollar weakens…its oil, gold, silver, etc.set for a big move, T's will continue to rise (although potentially moderated by Feds POMO).
Once this stuff rattles through to the economy, who's going to bail us out???
I'd have a go. I've got an Epsom Stylus P50, but that will only do 37ppm. It might not be enough.
just print million or billion dollar bills and might have us covered.
With your brains and my printer, we could be central bankers.
ham,
Do you not think Gold & Slvr have decoupled from the USD?.
I do.
It's to the point Gld is ignoring the dollar,the strong hands know its TOAST.
My guess (and not that I really know a god damn thing) is America and it's "innovative" Fed have now become the true core to which all infection can now travel. Fed has become the core for EU (supplanting Germany...damn Germans wouldn't step up to the plate so BB has taken over via the IMF) backing all in need. Fed will not allow banks, countries, insurers, and anybody worth more than a couple who's tied into the "financial network" to fail.
We are the worlds policeman and now the worlds lender (printer) of last resort. Funny thing we may soon be selling our own debt at higher rates than we lend to those "troubled" nations.
So, my guess is now that it is clear there is no stopping BB...the only alternative are hard things as Faber and others say. BB will backstop everything until something or somebody cracks. And the world is a deflationary place and Ben will stop at nothing to paper these $20T? $30? $50T? in losses over. Biggest problem is he only gives paper to those who are owed...not to those who owe it (you and I). Our debt remains, asset impairment remains, but bank can now go out and buy all this stuff ten cents on the dollar from stooopid Americans w/ fiat and then sell it back to us for twenty, thirty, fifty cent on the dollar. Oh and accounting fraud will allow and transferrance of all the shit on their books to Fan / Fred / FHA will allow them to come out like a rose.
Seems it's all bout supply and demand...there is only a limited supply of stuff but no end to the supply and demand for free fiat (but only those in the club get the fiat for free).
Come to think of it, BB is going to need a lot more QE if we are the big backstop and all credit risk stops w/ us...he'll need bid down the US Treasury market and avoid rates going much higher (T's at 5% average would be a disaster costing us bout $700B/yr just for debt interest payments as we roll into them)...but with oil soon at $100, S&P at 1250 - how will Ben be able to justify more QE. Or will he need to justify this or will the Fed simply show they are in charge and inflation be damned, "we need more QE to save all of you so we can kill you slowly, sucking your blood til you are all dry".
Fine summary Ham. I would just add that there is only one bid on everything now, and that's the Fed. Once someone cracks, or upchucks, and that bid isn't working, there really is no bottom. Interesting times indeed.
S&P once again for the first time STUNS the world with its keen insight & analytical expertise - Wow Greece's creditworthiness under review with negative implications next they will indicate that LeBron James will become a free agent & leave the Cleveland Cavaliers - S&P all the impact of a Bob Pisani blog post - Clean cup - move down!
If Bernanke bails out Greece as I believe he will is it not time to bring up treason charges. Hell Germany does not want to bailout Ireland or Greece and yet this a hole keeps on giving. This is very simply beyond the pale.
Treason?,why would bailing out Greece get that?.
They already bailed out UBS(Swiss),and Japan to a degree, several other foreign banks.( even Germany!).
Bottom line, is our Congress is not doing its job.Time to take over the Constitutional duties from a Corporation, whose main interest is Global, and not American.A company has ZERO business running the affairs of our COUNTRY.
Asshats should never have been allowed to create the Fed to begin with(as nefariously as it was done).
So far, futures are unfazed by the Greece news.
The dip-buying monkeys are still at it.
Looks to me like a lot of rotation with money coming out of high flyers like NFLX, FFIV, etc. and the gamblers are bottom fishing on financials, solars, and other beaten down sectors.
Looking at a pro / con for market...Simply amazing the power of BB and the Sackman.
Pro Market -
Con Market -
Anybody that has more to add to the pro side, glad to hear it. I think we all know the con side well nuf.
http://tinyurl.com/24uvh4r
I am thinking that Greece, Ireland, Spain, Portugal and any other EU rejects should join together and court some other alliances, such as with the BRIC countries, currently discriminated against Central African countries, Malaysia, maybe Iran, Venezula and the Stans and then just tell the EU/ECB and IMF to take their bank and shove it where the sun don't shine.
There are more people in this world who hate the elitist banking shitheads than like them... and there is no reason to have to deal with people who insist on telling you what you can and cannot do in your own country.
Excellent idea, the more countries that join a competing system the better.
I would go back to issuing my own currency, but that may not be possible with the U.S. and the EU working against it.
According to Jim Wille, the Euro will break up into 2 distinct zones. The North Euro (Germany, Nordic countries and eventually Russia will be involved) and the Southern Euro Zone, mostly with the PIIGS countries. France could go either way. Willie also says that the Hong Kong Dollar will be retired in 2011 and they will start using the Yuan as their currency.
They HAARPED Iceland.
What makes you think they won't do that now?
From Bloomberg, if Iceland was in the Caribbean, I'd move there tomorrow.
http://noir.bloomberg.com/apps/news?pid=20601109&sid=aS8x0Jdh2OGo&pos=13
Credit rating agencies have lost all credibility,why
not stop reporting their bullshit.Time to downgrade
the IMF,FED,ECB by let say a few honderd noches.
These institutions are totaly bankrupt(moraly and fin)
and are just plundering the souverain states to hide
their own insolvency.Greece,Iceland,Ireland,Potugal
are all beautifull country´s and will exist long after
these corrupt institutions have disapeared into
oblivion.You criminals at these institutions beter stop
your morbide games or risk your heads been separeted
from your body´s.People start to wake up and start to see for
what you really are,a bunch of lying traitors to your own people.
Big deal. This "rating action" reminds me of the guy back in college that got to the party after everybody left.
Junk to super duper whopping oh my f'in God Junk Shit?
Or is there something lower?
Its that stage of the cycle where the rating agencies play catch up and compete to see who can downgrade the fastest. The rubberstamp that gave life, life, life, life like a drunken Caligula now stomps death, death, death....
These people are the leaches of the finance world.