Greece Scores Unusual Debt Rating Upgrade from S&P
Just when you thought no good news could come out Greece, just look outside of Greece for good news on Greece. Standard & Poor’s has decided to raise Greece’s sovereign credit rating. The upgrade may only be to “CCC+” from CCC-” in the call, but the outlook is now stable.
Tuesday’s upgrade of Greece is after the nation of Greece requested and received consent, in principle, from the Eurogroup for a 3-year loan program under the European Stability Mechanism whereby it received 7.16 billion in three month bridge financing. That was used on July to 20 clear its arrears with the International Monetary Fund (IMF) and the Bank of Greece, and was used to repay the European Central Bank.
S&P further went on to say that it now thinks Greece’s chances of leaving the Eurozone has now fallen to less than 50% within a horizon to 2018 but still is higher than one-in-three. Still, S&P does warn that the risk of a Greek euro exit is still high if the Greek government fails to implement an ambitious program.
Lastly, S&P now believes that a Greek default on its commercial debt is no longer inevitable in the next six months to twelve months: It sees the opportunities for Greece to default on its commercial debt this year are few. Redemptions owed on commercial debt this year, excluding Greek Treasury bills, amount to a single payment of 176 million euro on a state-guaranteed Hellenic Railway bond which comes due in October. SP said that interest payments on commercial debt due in the last seven months of 2015 total 1.5 billion euro — less than 1% of GDP.
National Bank of Greece S.A. (NYSE: NBG) has been the real-time trader proxy for Greece, and its ADSs in New York trading were up 2.25 at $0.93 right after the news. NBG’s 52-week range is $0.85 to $3.69. NBG’s trading volume was 8.9 million shares as of 2:40 p.m. Eastern Time.
Global X FTSE Greece 20 ETF (NYSEMKT: GREK) was last seen up 1.4% at $10.07 against a 52-week range of $9.42 to $22.62. Volume there was only about 520,000 shares as of 2:40 p.m. Eastern Time.
A Greek debt upgrade may seem hard to fathom when you consider how close the nation came to being stuck with the drachma all over again. That being said, there are still no assurances that negative Greece news will not be right back in the media’s daily news flow in the days, weeks, or months ahead.
Greece’s financial commitments appear to us to be unsustainable over the long term, if and when the current official concessional loans are replaced by market funding and the current interest rate holiday on a significant part of Greece’s debt to official creditors lapses.
We believe the probability of Greece leaving the eurozone remains higher than one in three but less than 50%, although we think the agreement between Greece and its creditors announced last week has reduced this risk. The probability would increase if Greece doesn’t successfully implement the new ESM loan program. We see the risk of such non-implementation as high, given the weakness of the economy, and the implications this might have for further political and social instability.
Greece managed to get some good news here. That has not been very common to hear of late.