Ratings agencies say no default if Greece misses ECB, IMF payments

Fri May 1, 2015 7:11am EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Marc Jones

LONDON (Reuters) - Most top credit rating agencies say they would not cut Greece's rating to default if it misses a payment to the International Monetary Fund or European Central Bank, a stance that could keep vital ECB funding flowing into the financial system.

Greece owes nearly 1 billion euros to the IMF in May and almost 7 billion euros to the ECB over July and August and there are concerns that the government, stuck in funding talks with official lenders, will miss the payments.

This would be an unprecedented move that could put Athens' future in the euro in doubt and has raised questions about whether it could set off a chain reaction, possibly accelerating repayments due to other official and private sector creditors and compounding Greece's problems.

But for most rating firms, whose views determine whether the ECB can still accept sovereign Greek securities as collateral for lending to its banks, a missed IMF payment would not lead them label the country in default.

This is critical to keeping the life-support mechanism, the ELA emergency cash provided by the Greek central bank with the blessing of the ECB, flowing to banks because the ECB would not accept any securities issued by a government in default.

Standard and Poor's, Fitch and DBRS, three of the top four, all say that as the IMF and ECB are not standard creditors, a missed payment to either, although likely to push Greece's rating even deeper into junk, would not be classed as a default.

"If Greece were, for whatever reason, not to make a payment to the IMF or ECB that would not constitute a default under our criteria as it is 'official' sector debt," said Frank Gill, who rates Greece for S&P.

As was seen during Greece's massive 2012 debt restructuring, only when all four of the main agencies -- Moody's is the other one -- declared Athens in default, did the ECB say it would not accept Greek bonds as ELA collateral.   Continued...

 
Greek national flags are on display at a shop in central Athens April 17, 2015. REUTERS/Alkis Konstantinidis