Standard & Poor's Ratings Services: Greece Long-Term Rating Lowered One Notch To 'B-' And Kept On CreditWatch Negative

OVERVIEW

Liquidity constraints have narrowed the timeframe during which Greece's 
new government can reach an agreement with its official creditors on a 
financing programme, in our view. 
We believe the potential uncertainties surrounding the timing and success 
of such an agreement risk exacerbating deposit outflows, depressing 
investment, and weakening tax compliance.
As a result, we have lowered our long-term rating on Greece to 'B–' from 
'B'.
The long- and short-term ratings remain on CreditWatch negative.

RATING ACTION
On Feb. 6, 2015, Standard & Poor's Ratings Services lowered its long-term 
sovereign credit rating on the Hellenic Republic (Greece) to 'B-' from 'B'. 
The long- and short-term ratings on Greece remain on CreditWatch with negative 
implications.

As defined in EU CRA Regulation 1060/2009 (EU CRA Regulation), the ratings on 
Greece are subject to certain publication restrictions set out in Art 8a of 
the EU CRA Regulation, including publication in accordance with a 
pre-established calendar (see "Calendar Of 2015 EMEA Sovereign, Regional, And 
Local Government Rating Publication Dates," published Dec. 30, 2014). Under 
the EU CRA Regulation, deviations from the announced calendar are allowed only 
in limited circumstances and must be accompanied by a detailed explanation of 
the reasons for the deviation. In this case, the deviation has been caused by 
the European Central Bank's decision to lift the waiver on the eligibility of 
Greek government and government-guaranteed bonds in Eurosystem operations and 
the absence so far of an agreement to extend Greece's European Financial 
Stability Facility program beyond its expected expiration date on Feb. 28, 
2015.


RATIONALE
The downgrade reflects our view that the liquidity constraints weighing on 
Greece's banks and its economy have narrowed the timeframe during which the 
new government can reach an agreement on a financing programme with its 
official creditors: EU member states, the EFSF, the ECB, and the IMF. Although 
the newly elected Greek government has been in power for less than two weeks, 
we believe its limited cash buffers and approaching debt redemptions to 
official preferred creditors constrain its negotiating flexibility. In our 
view, a prolongation of talks with official creditors could also lead to 
further pressure on financial stability in the form of deposit withdrawals 
and, in a worst-case scenario, the imposition of capital controls and a loss 
of access to lender-of-last-resort financing, potentially resulting in 
Greece's exclusion from the Economic and Monetary Union.

On this issue, the Feb. 4 decision by the ECB to lift the waiver on the 
eligibility of Greek government and government-guaranteed bonds in Eurosystem 
operations has transferred the responsibility of lender-of-last-resort 
financing from the European Central Bank to the Bank of Greece, Greece's 
national central bank, via its Emergency Liquidity Assistance (ELA) facility. 
It is our understanding that the Greek banks will be able to switch their 
current ECB funding toward ELA facilities, though the continuity and level of 
ELA financing to Greek banks--including the acceptability of Greek government 
Treasury Bills--remains subject to ECB approval. We would expect the ECB to 
curtail the liquidity provision to the Greek banking system (and, therefore, 
to its economy) if the two-month technical extension of the EFSF programme is 
not extended beyond its current expiration date of Feb. 28, 2015. 

In its Feb. 4 press release announcing the suspension of Greek collateral 
eligibility, the ECB stated that "it is currently not possible to assume a 
successful conclusion of the programme review." We see the uncertainties 
connected to the provision of liquidity to Greek banks as potentially 
exacerbating deposit outflows, depressing investment, and weakening tax 
compliance, which are already deteriorating Greece's economic and fiscal 
profile.

In Greece's case, we do not consider the ratio of general government debt to 
GDP to be the sole metric for assessing the sustainability of public debt. 
Although this ratio was a very high 178% at year-end 2014, other features of 
Greece's public debt profile are less onerous, in our view. These include its 
unusually long debt maturities--16.5 years for the total stock and 30 years on 
official bilateral and EFSF financing--and the very low effective interest 
rate. Including concessional interest rates, Eurosystem retroceded interest 
earnings, and the interest rate grace period on official debt, we estimate 
Greece's general government interest to GDP at year-end 2014 at less than 3% 
of GDP. We would also note that our sovereign ratings pertain to a central 
government's ability and willingness to service financial obligations to 
commercial creditors, which in Greece's case hold an estimated 17% of the 
sovereign's debt stock excluding ECB and other official creditor holdings of 
bonded debt. Debt redemptions owed to the private sector this year and next 
total €510 million and €1,090 million, equivalent to 0.3% and 0.6% of GDP 
respectively, well below redemptions owed to official creditors. The Greek 
government has repeatedly committed itself not to involve private-sector 
creditors in any further debt re-profiling.


CREDITWATCH
We aim to update or resolve the CreditWatch status of the rating by the next 
scheduled publication date for Greece, which is on March 13, 2015. At that 
time, we could maintain the ratings on CreditWatch or we could remove them 
from CreditWatch after affirming them or lowering them again.

We could affirm our ratings on Greece if we anticipate that the government's 
negotiations with official creditors will conclude, with sufficient official 
funding flows to meet financial obligations.

Conversely, we could lower our ratings on Greece if we perceive that the 
likelihood of a distressed exchange of Greece's commercial debt has increased 
further because official funding has been curtailed, government borrowing 
requirements have deteriorated beyond our expectations, or Greece's external 
financing has come under greater stress.


RELATED CRITERIA AND RESEARCH


Related Criteria

Sovereign Rating Methodology, Dec. 23, 2014
Methodology For Linking Short-Term And Long-Term Ratings For Corporate, 
Insurance, And Sovereign Issuers, May 7, 2013
Criteria For Determining Transfer And Convertibility Assessments, May 18, 
2009

Related Research

Greece 'B/B' Ratings Placed On CreditWatch Negative On Policy Uncertainty,
 Jan. 28, 2015
Sovereign Defaults And Rating Transition Data, 2013 Update, Sept. 17, 
2014
How An Erosion Of Preferred Creditor Treatment Could Lead To Lower 
Ratings On Multilateral Lending Institutions, Aug. 26, 2013

 
In accordance with our relevant policies and procedures, the Rating Committee 
was composed of analysts that are qualified to vote in the committee, with 
sufficient experience to convey the appropriate level of knowledge and 
understanding of the methodology applicable (see 'Related Criteria And 
Research'). At the onset of the committee, the chair confirmed that the 
information provided to the Rating Committee by the primary analyst had been 
distributed in a timely manner and was sufficient for Committee members to 
make an informed decision.  

After the primary analyst gave opening remarks and explained the 
recommendation, the Committee discussed key rating factors and critical issues 
in accordance with the relevant criteria. Qualitative and quantitative risk 
factors were considered and discussed, looking at track-record and forecasts.

The committee agreed that fiscal and debt rating assessments deteriorated. All 
other key rating factors remained unchanged.

The chair ensured every voting member was given the opportunity to articulate 
his/her opinion. The chair or designee reviewed the draft report to ensure 
consistency with the Committee decision. The views and the decision of the 
rating committee are summarized in the above rationale and outlook. The 
weighting of all rating factors is described in the methodology used in this 
rating action (see 'Related Criteria And Research').  



RATINGS LIST

Downgraded; Ratings Affirmed
                                        To                 From
Greece (Hellenic Republic)
 Sovereign Credit Rating                B-/Watch Neg/B     B/Watch Neg/B
 Senior Unsecured                       B-/Watch Neg       B/Watch Neg
 Commercial Paper                       B/Watch Neg        B/Watch Neg
 Transfer & Convertibility Assessment   AAA                AAA

Complete ratings information is available to subscribers of RatingsDirect at 
www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by 
this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.  Alternatively, call one of the following Standard & Poor's numbers: 
Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009.