It's Official: S&P Cuts Greece To (Selective) Default From CC

Tyler Durden's picture

Translation: Greece better have that PSI in the bag or else the "Selective" goes away and "Greece would face an imminent outright payment default." Our question for former Goldmanite and current ECB head Mario Dragi: does the ECB allow defaulted bonds to be pledged as collateral within the Euro System?

From S&P

Greece Ratings Lowered To 'SD’ (Selective Default)

Rating Action
On Feb. 27, 2012, Standard & Poor's Ratings Services lowered its 'CC'  long-term and 'C' short-term sovereign credit ratings on the Hellenic Republic  (Greece) to 'SD' (selective default).

Our recovery rating of '4' on Greece's foreign-currency issue ratings is  unchanged. Our country transfer and convertibility (T&C) assessment for  Greece, as for all other eurozone members, remains 'AAA'.


We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors has agreed to do so. In our opinion, Greece's retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring. Under our criteria, either condition is grounds for us to lower our sovereign credit rating on Greece to 'SD' and our ratings on the affected debt issues to 'D'.

As we have previously stated, we may view an issuer's unilateral change of the original terms and conditions of an obligation as a de facto restructuring and thus a default by Standard & Poor's published definition (see "Retroactive Application Of Collective Action Clauses Would Constitute A Selective Default By Greece," Feb. 10, 2012, and "Rating Implications Of Exchange Offers And Similar Restructurings, Update," May 12, 2009). Under our criteria, the definition of restructuring includes exchange offers featuring the issuance of new debt with less-favorable terms than those of the original issue without what we view to be adequate offsetting compensation. Such less-favorable terms could include a reduced principal amount, extended maturities, a lower coupon,  different payment currency, different legal characteristics that affect debt service, or effective subordination.

We do not generally view CACs (to the extent that they are included in an original issuance) as changing a government's incentive to pay its obligations in full and on time. However, we believe that the retroactive insertion of CACs will diminish bondholders' bargaining power in an upcoming debt exchange. Indeed, Greece launched such an exchange offer on Feb. 24, 2012.

If the exchange is consummated (which we understand is scheduled to occur on or about March 12, 2012), we will likely consider the selective default to be cured and raise the sovereign credit rating on Greece to the 'CCC' category, reflecting our forward-looking assessment of Greece's creditworthiness. In this context, any potential upgrade to the 'CCC' category rating would inter alia reflect our view of Greece's uncertain economic growth prospects and still large government debt, even after the debt restructuring is concluded.

If a sufficient number of bondholders do not accept the exchange offer, we believe that Greece would face an imminent outright payment default. This is because of its lack of access to market funding and the likely unavailability of additional official financing. The revised financial assistance program provided by most of the eurozone governments and the Stand-By Credit Arrangement with the International Monetary Fund are predicated on a successful exchange offer.

Our T&C assessment for Greece, as for all other eurozone members, is 'AAA'. A T&C assessment reflects our view of the likelihood of a sovereign restricting nonsovereign access to foreign exchange needed to satisfy the nonsovereign's debt-service obligations. Our T&C assessment for Greece expresses our view of the low likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt servicing.

If Greece were to withdraw from eurozone membership (which is not our base-case assumption) and introduce a new local currency, we would reevaluate our T&C assessment on Greece to reflect our view of the likelihood of the Greek sovereign and its central bank restricting nonsovereign access to foreign exchange needed for debt service. Contrary to the current case, in this scenario, the euro would be a foreign currency, and the Bank of Greece would no longer be part of the European System of Central Banks. As a result, under our criteria, the T&C assessment can be at most three notches above the foreign-currency sovereign credit rating.

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Sudden Debt's picture

And spain's deficit for 2011 is 8,5% instead of the projected 6%....

maxmad's picture

Let it collapse, bitchez!

brewing's picture


The Big Ching-aso's picture



CACs should be renamed more appropriately to CACAs.

JPM Hater001's picture

It just occured to me the algo's missed what the Austrian in all of us tweeted last week.

Default bitchez...

Can't wait to see how the Algo's like that tomorrow.  Probably a chance to stay about 13000...maybe 1350 close?

Bullish, definitely.

Ahmeexnal's picture

Make that....Schroedinger's Default

Not a default if you are holding CDS!

Thomas's picture

CDS owners will experience consummation as well

LookingWithAmazement's picture

Collapse won't come. Euro will be saved again this week, both by the ECB's new LTRO as well as by the Euroministers, who pile up some 750 or even 1000 billion euros in the new ESM. Forget the ritual protests coming out of Germany. Markets will rally. Bye bye crisis. No eurocollapse. Told you so, many times. Boring world we live in.

EscapeKey's picture

"Hyperinflations are always caused by public budget deficits which are largely financed by money creation."

-Peter Bernholz, "Monetary Regimes & Inflation".

kanenas's picture

True, if and when the money printed enters the real world market. As long as it stays in the books no hyperinflation will be experienced.

Can you explain why US/EUR is not already experiencing hyperinflation with all the printing that has been going on?

flacon's picture

Can you explain why US/EUR is not already experiencing hyperinflation with all the printing that has been going on?


The velocity of money is too low. 

kaiten's picture

Dont panic, the higher, the better. Just look at US.

Sudden Debt's picture

Yeah but you guys have all that "hidden" gold in the grand canyon....

cossack55's picture

SSSSSSShhhhhhhhhhhhh!!!!!! It's a secret.

TruthInSunshine's picture

Buy the subordinate, subserviant & junior dips.

lotsoffun's picture

het spijt mij.  i can't help myself.  who is going to pay out.  yo mama.  she's in LA now helping out with the oscars.  god bless obama, i think he is due a second nobel now for his insightful  diplomacy in the the middle and near east.

(not that rimney would be any better... what a shame)


Irish66's picture

ISDA meeting is Wednesday

Tyler Durden's picture

The ISDA meeting on Wednesday has to do with whether the ECB's singlehanded and illegal CAC-enabling (of its own bonds) prearranged exchange offer can be found as a CDS trigger. It won't be and is a big waste of time as ISDA is controlled by the same banks that stand to lose if CDS are triggered.

Sudden Debt's picture

Is there small print to allow them to do that?

EscapeKey's picture

Right, that's it. Let's start an insurance company, which never pays out. Your house burns down? Not a credit event. Your car was broken into? Not a credit event.

Who's with me? All we need to do is lobby the elected. Can probably be done on the cheap if we resort to prostitutes (lobby prostitutes with... prostitutes, some would say) and extortion.

Sudden Debt's picture

So who is going to pay out my "end of the world" insurance in 2013 if the world ends in december 2012?

mayhem_korner's picture



I've got a case of 1945 single-malt set aside just for you, SD.

EscapeKey's picture

Well, tell you what. It just so happens underwriting that is entirely within the scope of the business plan.

Do you wish to take the platinum pro package, with 24 hour access to our telemarkete... er I mean insurance professionals?

UP Forester's picture

Are your telemarkete... er, I mean insurance professionals, all named Steve, instead of Rajib, Ramakrishna, Gopi, etc.?

If they are, sign me up.

HardlyZero's picture

Buffet Hormones...or was that hoar moans ?

mayhem_korner's picture



I think "hoar" is some kind of frost, bub. 


ShankyS's picture

Not to be confused with a certain CNBS anchor. 

mayhem_korner's picture

a big waste of time as ISDA is controlled by the same banks that stand to lose if CDS are triggered.


Bingo.  The link:

and the members of the Europe Credit Determinations Commitee

Irish66's picture

I know who they are and I'm gonna be an optimist and say we get to pull the trigger this time.

I took my pills today.

noses's picture

Pulling the trigger will not help any more – they do own the bullets by now.

tickhound's picture

"a big waste of time as ISDA is controlled by the same banks that stand to lose if CDS are triggered."

And there it is folks... initials subject to change.

YesWeKahn's picture

I have been thinking the same thing. CDS is designed to make money, not losing money.

These banks made sure that they have their men elected to the ECB and other "important positions" to make money off the people.

lotsoffun's picture

cds is designed to make money for the SELLERS - as they collect over time and NEVER are going to pay out, as they pack up shop, declare bankruptcy and move on.  i'm getting old now, and i realize that's the way it is.  anybody writing insurance has no itention to actually pay at any point.  may pay from time to time, but not when it gets hit big.  sorry.  reality.


dwayne elizando's picture

Tyler, who's the largest holder of greek CDS and bonds?

maxmad's picture

This will trigger it!   "Clean up on isle 4"

mayhem_korner's picture didn't go in.  Just impacted on the surface. 

(Red Leader, Star Wars)

bank guy in Brussels's picture

Goldbug guru Jim Sinclair gave a major rant the other day on ISDA and Greece. He was totally cranked about the ISDA committee likely opining that a Greek PSI so-called agreement for a Greek haircut of 50 % - 70 % or more was not a default 'credit event'

Jim thinks this is a big event, which he sees as (1) essentially admitting that the major US banks are insolvent (because they write most CDS) and (2) necessitating 'QE to infinity', endless money-printing to cover up for those banks. 'QE to infinity' is Jim's favourite theme and prediction, with a shiny future of gold amid hyperinflation.

Sinclair called ISDA ... somewhat over-the-top:

"The most powerful body in the financial world ... This organization supersedes all governments and central banks today in terms of the financial power they edict."

As if they were the Bilderbergers, Trilaterial Commission, Rothschilds etc. all rolled into one.

Jim's rant on ISDA is both audio, and in text form here:

Irish66's picture

Will be interesting to see what he says tonight

Tyler Durden's picture

Actually Jim is completely wrong as the trade off to not triggering CDS is the loss of faith in CDS as a hedging mechanism (discussed here many times). While it may appear trivial to those who enjoy vacuous hyperbole with no clue how bond hedging actually works, having the only possible hedge to a long position be "selling" (as was seen in the fall with Italian BTPs) is a far worse outcome to the ISDA constituent banks than having what they believe will be a one off event (that this is wrong is a different story), if it will reinforce bond buying in the other peripheral European countries if said buying can be hedged with somewhat credible derivatives.

mayhem_korner's picture



Newton's law.  Nice insight.

illyia's picture

Second most interesting thing I've read on ZH this week including the weekend.

This was the first most interesting:

CClarity's picture

I'm actually cluing into a sense that some of the top bankers comfort in the sheeples compacency is starting to fray.  The bankers are starting to experience fear themselves.

kaiserhoff's picture

somewhat credible derivatives.

And therein lies a whole species of madness, not unlike what just happened with "mortgage insurance."

Otherwise sentient people, lying to regulators, auditors, and themselves about insurance they don't have and never had.  This has nothing to do with investment, but a lot to do with mass hysteria and the madness of crowds.


EscapeKey's picture

Well, if you're big enough, alternatively you could start rapidly accumulting HUGE amounts of PIIGS debt, and then extort bailouts repeatedly when the price of the bonds inevitably start dropping. Or pledge it as collateral with some entity stupid enough to accept it - like the ECB.

Regardles, it's not as if the taxpayer will have a say, anyway.

Vampyroteuthis infernalis's picture

Yes, the fire insurance is no longer good after the house burnt to the ground. Insurance companies say so. This whole flaming pile of crap will go down because those investors who bought the CDS will be instantly wiped out. Instant panic as they are forced to liquidate all their investments whether they can or can not. Failure will result in bankruptcy.