Diminishing Path to Solvency Triggers Downgrade-Fitch Special Report
For those wishing to get a insight into the Greek Dilemma, below is some good reading by Fitch. Irrespective of Germany being the savior for the day, Greece is running out of cash in July, and something needs to be done. New bail out, or why not leave the creditors?
Fitch Ratings downgraded Greece’s Long‐Term Foreign‐ and Local‐Currency Issuer Default Ratings to ‘B+’ from ‘BB+’ on 20 May 2011, and put the ratings on Rating Watch Negative (RWN). The severity of the rating action reflects the scale of the challenge facing the Greek authorities as they prepare to undertake more intensive fiscal and structural reforms to restore sovereign creditworthiness and lay the foundations for sustained economic recovery. Fitch believes that implementation and political risks have risen and that there is a high probability that the IMF‐EU programme, as it currently stands, will cease to be fully funded beyond 2011.
Fitch first articulated the risk of renewed funding gaps emerging in 2012 in January 2011, at the time of an earlier downgrade of Greece’s sovereign ratings to ‘BB+’ from ‘BBB−’. In Fitch’s view, the outcome of the EU Heads of Government Summit in March heightened this risk still further, by raising market perceptions of the inevitability of some form of debt restructuring under the auspices of the newly created European Stabilisation Mechanism (ESM). Investor sentiment towards Greek sovereign risk in the wake of this initiative has deteriorated to such an extent that Fitch now believes that it is highly unlikely that Greece will be able to regain market access during the remaining life of the IMF‐EU programme (May 2013).
Incorporated into the ‘B+’ rating is Fitch’s expectation that substantial new money will be forthcoming for Greece from the EU and the IMF and that Greek sovereign bonds will not be subject to a “soft restructuring” or “re‐profiling” that would trigger a “credit event” and consequently a default rating from the agency. Earlier in 2011 the IMF and EU agreed to more lenient repayment terms on its existing support package, including an extension of maturities. This “credit event” did not affect market debt. However, Fitch reiterates that any extension of maturities on existing sovereign bonds would be treated as a default event and that the Hellenic Republic and its obligations would be rated accordingly.