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Portfolio > Mutual Funds > Bond Funds

ECB Will Accept Greek Bonds Unless All Agencies Rate Default

By Marlene Y. Satter

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The European Central Bank (ECB) will continue to accept Greek sovereign bonds as collateral for liquidity as long as all agencies have not categorized a proposed rollover operation as a default.

Reuters reported an unidentified financial sector source cited in the Financial Times as saying that, despite a warning from Standard & Poor's that even a voluntary rollover of Greece's debt would be regarded as a default, the bank would continue to accept bonds as collateral. It would use whichever rating was highest as its determining factor.

The ECB, which uses four agencies’ ratings to determine collateral eligibility, already had suspended ratings requirements for the bonds of Greece and Ireland. The bank had said that if Greece went into default, it would no longer accept the country's bonds. However, if all four of the agencies—Standard & Poor's, Fitch, Moody's and DBRS—do not rate Athens as in default, it would use the top rating in the group.

The article said, "The ECB would rely on the principle of using the best rating available from the agencies," according to its unnamed source. The ECB, it added, would not comment.

French banks, which have heavy exposure to Greek debt, have been floating a plan for voluntary rollover of the bonds that they hope will avoid a default classification. While S&P has said it will still regard such an action as a default, other agencies have not all weighed in. Fitch had suggested, before the French scenario became public, that in the case of a voluntary action on the part of bondholders it might not be so hard on Athens. It had said it could keep the bonds at a rating of CCC while downgrading the issuer default rating to "restricted default."

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