STOCK MARKET WATCH -- Thursday, 1 March 2012

[Demeter]

16. RECKONING TIME! S&P Cuts Greece To Selective Default, Cites Collective-Action Clauses

http://online.wsj.com/article/BT-CO-20120227-715442.html?mod=dist_smartbrief

--Greece becomes first euro-zone country to be rated in default

--Collective-action clauses cited as a factor in downgrade

--S&P expects to rate new bonds triple-C

NEW YORK (Dow Jones)--Greece became the first euro-zone member to officially be rated in default Monday, 13 years after the single European currency was adopted in a program that was expected to strengthen the European Union.

Standard & Poor's on Monday cut Greece's long-term credit rating to selective default from double-CC. The move was expected, as S&P said earlier this month it would consider Greece in default if it retroactively added so-called collective-action clauses...

Greece In Selective Default, S&P Says

http://www.forbes.com/sites/afontevecchia/2012/02/27/greece-in-selective-default-sp-says/

Greece’s credit rating was cut to selective default by Standard & Poor’s after the bell on Monday, reflecting the implementation of collective action clauses (CACs) on its debt. Greece is in the middle of one of the largest sovereign debt restructurings ever and needs to secure significant private sector participation rate; CACs are designed to forcibly increase that rate.

According to S&P, the Greek government retroactively inserted CACs into the documentation of certain series of its sovereign debt on February 23, two days after the Troika agreed on the terms for a second bailout package. This retroactive implementation substantially changed the terms of the deal and diminished investors’ bargaining power in the face of a restructuring, causing the downgrade, S&P said.

Greece needs to fulfill certain conditions in order to receive the next tranche of money and avoid a disorderly default. Among those is the successful implementation of the so-called PSI (private sector involvement) deal, which is supposed to be voluntary. In practice, Greece is executing a bond restructuring that will see bondholders take an approximately 70% haircut on the net present value of their bonds while the average maturity will be significantly extended, reducing shorter-term funding requirements.

For the PSI to succeed, the Troika (made up by the EU Commission, the ECB, and the IMF) is expecting Greece to secure the participation of 95% of private bondholders. Experts at Barclays believe Greece could come short, and thus would use retroactive CACs that could require a 66% participation rate to force all bondholders to take the deal....“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,” read S&P’s post-market release....MORE