Rating agency Fitch has billed the eurozone’s rescue plan for Greece as a temporary selective default and warned that other bailed-out states could end up needing the same.
Markets welcomed the second international bailout deal for heavily-indebted Greece yesterday, which agreed to provide another €109bn (£96bn) of funding. It also brought in formal private sector involvement for the first time, requiring bondholders to take a 21 per cent haircut on their holdings, a cutback of up to €50bn.
But Fitch said the clause that will see investors voluntarily swap their Greek bonds for longer maturities at lower rates constituted a default, even as it praised the deal for throwing Greece a lifeline.
“Fitch considers the nature of private sector involvement in a new financial programme of support for Greece to constitute a Restricted Default event,” it said in a statement.
“However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces.”
But it said it would re-rate Greece at a higher, "low speculative grade" after its bonds had been exchanged.
Evolution Securities analyst Gary Jenkins said Fitch’s decision was “no surprise” but said its view on other peripheral eurozone states was most interesting as the agency had already considered the prospect of Ireland and Portugal also benefiting from sucj an arrangement. .
“Fitch notes the declaration by European leaders that the nature of private sector involvement as part of a new EU-IMF programme for Greece is an "exceptional and unique solution",” the agency said.
“Nonetheless, if the Irish and Portuguese economies and public finances are not firmly on a sustainable path going into 2013, when both will need to regain access to medium-term market funding, the potential precedent set by PSI in the Greek package will be incorporated into Fitch's assessment of the risks to bondholders and reflected in its sovereign rating opinions and actions.”
Ratings agencies Standard & Poor's and Moody's are likely to follow Fitch's lead.