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Fitch Would Review Portugal, Ireland On Distressed Greek Exchange

Published Friday, 10th June 2011 12:38 am - © 2011 Dow Jones

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LONDON -(Dow Jones)- Fitch would review-Portugal and Ireland's sovereign credit ratings if Greece undertook a distressed debt exchange, a senior official at the ratings company said Thursday.

David Riley, head of sovereign ratings at Fitch, said it was hard to argue that Greece isn't distressed.

Euro-zone policy-makers are currently trying to get a deal in place to give Greece the additional funds it needs because it looks unlikely to be able to access the bond markets for the rest of this year or next year.

Riley said he didn't expect a "disorderly default" but that Fitch's assumption that the European Union and the International Monetary Fund would provide more funding for Greece "may not have been a correct judgement."

One way of filling the funding gap could be "some form of coercive bailing in of bondholders" which would be "a potential change to the rules of the game that we would have to think about" with regard to Portugal and Ireland, he said.

Like Greece, Ireland and Portugal have received bailouts from the European Union and the International Monetary Fund.

Spain, which has not asked for assistance, is "making good progress", but "has not definitely detached itself from the crisis," Riley said, adding that Fitch didn't expect Spain to ask for an EU/IMF aid program.

Speaking at an event held by the Emerging Market Trade Association, Riley said Greece would be cut to single-C if it deemed any Greek exchange as being distressed.

The securities affected by the exchange would be cut to Restrictive Default on completion of the exchange, Riley said, but this rating might be relatively short-lived.

Fitch currently rates Greece B+ and has the rating on Watch Negative.

His comments come after the rating agency published a special report on Greece Monday.

In the report, Fitch said if bondholders were asked to swap existing Greek debt for new debt with "materially less advantageous" terms, it could still constitute a default even if bondholder participation was deemed to be voluntary.

This would be the case if an exchange "is, or appears to be, necessary to avoid insolvency and/or illiquidity," the ratings company said.

In this case, Fitch said it would judge the exchange to be coercive and a "distressed debt exchange... and hence a default."

Earlier Thursday, European Central Bank President Jean-Claude Trichet reiterated the bank's continuing opposition to any form of restructuring of Greece's debt that would not be "purely voluntary and without any element of compulsion."

Trichet's remarks follow a call by the German Finance Minister, Wolfgang Schaeuble, this week for a "substantial" contribution by private creditors to solving the Greek debt crisis.

Riley said Fitch is "waiting for the debate to be concluded, then that will be incorporated into our rating analysis."

-By Clare Connaghan and Mark Brown, Dow Jones Newswires; +44 (0) 20 7842 9496,

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