A debt swap deal will push Greece into temporary default irrespective of the size of investor losses, a senior analyst at Fitch Ratings said on Wednesday, according to Reuters, adding that the terms of the agreement will influence the rating of the new bonds.
Private sector creditors represented by the Institute of International Finance came back to the negotiating table on Wednesday in Athens, in a new bid to agree on a deal to cut Greece΄s debt in time to avert a disorderly default in March.
The stumbling block in the talks has been the low interest payment offered on the new bonds, which could push the real loss for investors, known as net present value (NPV), well above the 50 percent originally envisaged.
“It would be a default regardless of the size of the NPV loss,” said Fitch΄s lead analyst for Greece Paul Rawkins.
“We would mark it appropriately with a default rating, which we would probably maintain for a short period before we put the replacement bonds on a new rating that we have not decided on yet,” he told Reuters.
The loss for investors, which is at the heart of the negotiations, is now estimated at around 60 to 70 percent depending on the coupon, discount rate and maturity.
Asked if this would influence the rating on the new bonds, Rawkins said: “Along with other relevant factors, the new post-default ratings would take into account the extended maturity structure and the reduction in the NPV of the Greek public debt stock.”
Fitch currently rates Greece CCC, or one notch above default. Ratings, which give an estimate of the capacity of a creditor to repay its debt, often serve as a guide for investors.
“As far as the Greek sovereign is concerned it would be treated as a restricted default,” Rawkins said. “The ΄old bonds΄ would be assigned a default rating on the date that the offer period for the proposed debt exchange closes”.
(source: Reuters, capital)
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