Moody’s says Cyprus’ debt swap equal to default
Moody’s Investors Service on Monday said that it considers Cyprus to have defaulted after the debt-stricken island country swapped some local bonds for longer-term bonds.
The ratings agency, which does not use a “default” or “selective default” rating, said it will revisit Cyprus’ rating to assess the impact of the exchange on the sustainability of the nation’s debt burden. Other factors, including the likelihood that Cyprus will comply with the rest of the measures spelled out in its bailout agreement with the International Monetary Fund, the European Central Bank and the European Union, will be taken into consideration as well.
Cyprus negotiated a 23 billion euro ($30 billion) bailout with those entities in March. To get the money, Cyprus had to agree to cut spending and restructure its banking system.
Cyprus’ economy is slowing, unemployment is increasing and deposits at its banks have shrunk since the deal.
Moody’s currently has a “Caa3” rating, which is non-investment grade, or “junk” status, on Cyprus, with a negative outlook.
The statement comes after Standard & Poor’s lowered its credit rating on Cyprus on Friday into “selective default” because of the debt exchange.
Moody’s said that while the swap involved an extension of existing bonds maturing from 2013 through 2016 with longer maturities, under its definitions that is considered a “distressed exchange” and therefore, a debt default. This is because the exchanged amounts to a lower financial obligation compared to the original and the deal enables Cyprus to avoid payment default in the future.