S&P downgrades Greece after IMF repayment delayed

Questions if the debt is sustainable after delay, says outlook negative

Ratings agency Standard & Poor's downgraded Greece's sovereign rating deeper into junk territory on Wednesday, questioning whether its debt is sustainable after the government delayed a payment to the International Monetary Fund.

In a statement, S&P said it had lowered the rating by one notch to CCC from CCC+, saying that as Athens delayed the debt repayment last Friday, the government appeared to be prioritising pension payments and domestic spending over its debt-service obligations.

Greece exercised its right to group all its payments to the IMF due in June and pay them before the end of the month.

However, the country appears unlikely to be able to make this 1.6 billion euro payment without sealing a cash-for-reform deal with its international creditors, and negotiations in Brussels are so far deadlocked, raising the risk of an imminent default.

S&P also said that given the risk of a further worsening of liquidity for the government, its banks, and the economy, its credit outlook for Greece is negative.

"In our view, without a turnaround in the trajectory of nominal GDP and deep public-sector reform, Greece's debt is unsustainable," it said.

In the absence of deal between Greece and its EU/IMF creditors, S&P said "the Greek government will likely default on its commercial debt within the next 12 months", but expressed pessimism that any official debt relief or more substantial financing will be agreed in the next few days.

Moody's Investors Service downgraded Greece's government bond rating to 'Caa2' from 'Caa1' in April and assigned it a "negative" outlook, due to uncertainty over whether the country will be able to reach a deal with its international lenders in time to meet upcoming debt repayments.