Moodys declares Greece in default
Mar 09, 2012
Moody's declared Greece in default on its debt Friday after Athens carved out a deal with private creditors for a bond exchange that will write off 107 billion euros ($140 billion) of its debt.
Moody's pointed out that even as 85.8 percent of the holders of Greek-law bonds had signed onto the deal, the exercise of collective action clauses that Athens is applying to its bonds will force the remaining bondholders to participate.
Overall the cost to bondholders, based on the net present value of the debt, will be at least 70 percent of the investment, Moody's said.
"According to Moody's definitions, this exchange represents a 'distressed exchange,' and therefore a debt default," the US-based rating firm said.
For one, "The exchange amounts to a diminished financial obligation relative to the original obligation."
This credit ratings company supports the ISDA's earlier declaration of default. The partial default of 70% is still legally a default, and so legally the banks that insured those bonds will have to pay the difference. The BBC News said this evening that this would amount to about $3 billion.
This is a relatively small amount of cash to be divided up among such big banks, but yet I believe it will prove to be a crucial case that sets a precedent for Italy, Portugal, and Spain. One default--even a partial one--is probably not enough to sink the whole system, but it sets up a more precarious position for the next default.
The date is Friday, the last day of the prayer campaign.
Dr. Stephen Jones