23.01.2012
By Simon Miller
Germany and France have pressed for a quick solution to the debt talks between Greece and its private creditors as Moody’s downgraded five Greek covered bond transactions.
Greece is in talks with private debt holders over a voluntary haircut to avoid a default in March this year.
As eurozone finance ministers met to decide what terms of a Greek debt restructuring they were ready to accept, French finance minister Francois
Baroin told reporters that a deal appeared to be “taking shape”.
However, German finance minister Wolfgang Schaeuble said that any deal must help Greece to cut its debt mountain by 25% by the end of the decade.
He told a press conference: “"The negotiations will be difficult, but we want the second program for Greece to be implemented in March so that the second tranche can be released,"
"Greece must fulfil its commitments, it is difficult and there is already a lot of delay," Schaeuble added.
According to reports, Greece and its creditors are looking towards a deal that would see the debt holders take a real loss of 65 to 70% on their bonds but are still negotiating over the debt restructure which would see bond swaps for new longer-term bonds.
The talks will be given an added impetus after ratings agency Moody’s downgraded five Greek covered bond transactions issued under the Greek covered bond law on the back of the increased likelihood and severity of the Greek sovereign defaulting on its debt and the implications of such a default for Greek covered bonds.
“In the event of a disorderly Greek sovereign default, the functioning of the banking system and the state could be materially impaired, and the economy would very likely experience a further sharp contraction. A disorderly default would also increase the likelihood of Greece exiting the euro area, accompanied by a return to a deeply devalued national currency,” said the downgrade note.
It added: “Whilst such an event is not Moody's central scenario, the probability of it occurring is rising. In that event, the ability for Greek borrowers to repay their debt would weaken significantly, beyond that already assumed. Even taking into account the low likelihood of this scenario, its effect would be such that Moody's has concluded that the rating for any Greek covered bond could not be higher than B1.”
The rating actions are as follows:
• Covered bonds issued by Alpha Bank A.E. (Alpha) under its Direct Issuance Covered Bond Programme (Alpha Direct Issuance CB): Downgraded to B1 from Ba3 (on review for downgrade)
• Covered bonds issued by EFG Eurobank Ergasias S.A. (Eurobank EFG) under its Mortgage Covered Bond Programme (EFG CB I): Downgraded to B1 from Ba3 (on review for downgrade)
• Covered bonds issued by Eurobank EFG under its Mortgage Covered Bond Programme II (EFG CB II): Downgraded to B2 from B1 (on review for downgrade)
• Covered bonds issued by National Bank of Greece S.A. (NBG) under its Global Covered Bond Programme (NBG CB I): Downgraded to B1 from Ba3 (on review for downgrade)
• Covered bonds issued by NBG under its Covered Bond Programme II (NBG CB II): Downgraded to B1 from Ba3 (on review for downgrade)
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