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The headline isn't dramatic. Credit rating agencies likely will consider this a default. The article explains it pretty plainly: But that won't stop the credit
by latch 15y ago
The headline isn't dramatic. Credit rating agencies likely will consider this a default. The article explains it pretty plainly:
But that won't stop the credit rating agencies giving Greece's bonds a default rating — this is a coercive deal, which clearly reduces the value of banks' Greek debt. (After all, just look at those haircuts.)
A default is when you fail to fulfill your obligations. If I owe you $1.00, but instead pay you $0.80 (1 year late)...I didn't fulfill my obligation to you, and it's fair to consider me a credit risk.
Or, put another way, people who declare personal bankruptcy don't do so because they can't pay _any_ of their debt, they do so because they can't pay _all_ of it.
- jeffreymcmanus 15y agoDebt rating describes a borrower's creditworthiness at a particular moment in time. Since Greece won't have access to the world credit markets for some time, their credit rating today is not material. What is at issue here is how quickly their credit rating recovers.
- vladd 15y agoBut that's not what's happening at this moment. If you choose to do nothing, you still keep your $1.00 debt. Until now, Greece didn't miss a single payment. It's not making it mandatory to accept the 20% cut. It's not downgrading any promise for holders that choose to do nothing. Nor did it fail to pay its matured debt until now. It's just offering additional guarantees (which were not present in the initial debt agreement) at a specific cost (a 20% cut or a longer maturity date) for those that want to enter willingly into such transactions.