Moody’s Investors Service said Friday it is reviewing four classes of Greek covered bonds for possible downgrade, citing recent events it says have heightened the country’s risk of a disorderly default.
Greece narrowly avoided holding a referendum on a restructuring plan that is aimed at rescuing the country from default by imposing a 50% “voluntary” haircut on its national debt. The referendum’s failure eased some of the markets’ concern, but Moody’s has said the country still faces a host of serious risks. The technocratic Prime Minister Lucas Papademos, who was sworn into office Friday, has himself expressed concerns about the limitations of a Greek debt restructuring.
The latest action from Moody’s Friday didn’t affect Greece’s sovereign debt rating, which remains at Ca, among the lowest ratings short of default. Instead, the credit rater said it is looking at covered bonds issued by four banks based on wider concerns about the country’s risk of disorderly default, which would in turn destabilize the banking system. A covered bond is a kind of debt issued by banks that is collateralized with assets such as mortgages.
Moody’s rating on the debt has already taken into account other adverse scenarios like a severe macroeconomic decline. On Friday, it said that risk had “risen from multiple sources.”
Moody’s said its review will assess how far Greece’s heightened political uncertainty and social unrest have increased the risk of a disorderly default. It will also assess the likelihood of Greece leaving the euro zone, another scenario that would carry severe implications for Greek covered bond programs.
(source: Dow Jones)
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