Standard and Poor's said today that it had cut its rating for debt issued by Greece by two points and could go lower because of a rising probability that the country would have to restructure its debt.
The rating agency said the downgrade further into junk status, big by sovereign ratings standards, was motivated by a perception that official creditors of Greece were increasingly likely to extend the country's repayment period and would want to ensure that private bondholders did likewise.
'The downgrade reflects our view of increasing sentiment among Greece's key euro zone official creditors to extend the debt payment maturities of their €80 billion of bilateral loans pooled by the European Commission,' the credit rating agency said.
'As part of such an extension, we believe the euro zone creditor governments would likely seek 'comparability of treatment' from commercial creditors in the form of their similarly extending bond and loan maturities,' it added.
'Such private sector burden sharing would likely constitute a distressed exchange according to our criteria, for which we assign a rating of 'SD' for selective default,' it said.
It said it had lowered its rating for long-term debt to 'B' from 'BB-' and for short-term debt to 'C' from 'B'.
The downgrade, immediately attacked by Greece, comes after mounting anxiety over the weekend that clouds are again deepening over the euro zone's Greek debt problem.
Many financial analysts think that a restructuring of some sort is increasingly likely, and a German press report at the end of last week that Greece might leave the euro zone heightened alarm.
This has since been denied by EU and Greek officials, but an EU source today said that a discreet meeting of some euro zone finance ministers on Friday did move towards considering whether Greece might need further help next year, while ruling out a restructuring.
Meanwhile, Greece attacked the rating agency for hitting its sovereign debt with a two-notch downgrade today, saying the agency's 'reliability' was in doubt.
'Their reliability is placed in doubt,' the Greek finance ministry said, arguing that there had been no deterioration in the country's economic figures since the agency's last evaluation in March.
'Decisions by ratings agencies must be based on evidence,' the ministry said of the move which came a day before Athens intends to issue a batch of six-month treasury bills worth €1.25 billion.
