Moody's Investors Service considers Greece to have defaulted per its default definitions. The announcement comes despite Athens reaching a deal with private creditors for a bond exchange that will shave €107 billion from its €350 billion debt.
The agency pointed out that even though 85.8 per cent of the holders of Greek-law bonds had signed to the deal, the exercise of collective action clauses that Athens is applying to its bonds will force the remaining bondholders to participate.
Eventually, the overall cost to bondholders, based on the present net value of the debt, will be at least 70 per cent of the investment, Moody's explained.
"According to Moody's definitions, this exchange represents a 'distressed exchange,' and therefore a debt default," the US rating firm said. "This is because (i) the exchange amounts to a diminished financial obligation relative to the original obligation, and (ii) the exchange has the effect of allowing Greece to avoid payment default in the future."