Standard & Poor's downgraded Greece's credit rating by three notches Monday, making it the world's lowest after the agency said a likely debt restructuring would be considered a default.
A restructuring of Greece's debt — either with a bond swap or by extending maturities on existing bonds — looks increasingly likely to be imposed by European policymakers as a means of sharing the burden of Greece's crisis with the private sector, S&P said in a statement.
"In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria," the agency said.
In such a case, S&P added, Greece's credit rating would be lowered to "selective default," or SD, while the ratings on the country's debt instruments would be cut to D.
US stocks and the euro fell as the downgrade compounded worries over a possible Greek default and sapped an early revival in risk appetite.
S&P cut Greece's long-term sovereign credit ratings to CCC, just four steps away from default, from B. The short-term rating was affirmed at C and all the ratings were removed from credit watch.
The outlook on the long-term rating remains negative, however, in a sign that another downgrade is likely in the next 12 to 18 months.
In response, Greece said S&P overlooked intense deliberations at the European Union and the IMF to find a viable solution to its debt crisis.
"The (S&P) decision also overlooks the government's moves to avoid any problems relating to Greece's contractual obligations as well as the will of all Greeks to plan our future inside the euro zone," the finance ministry said in a statement after the rating action.
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