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S&P cuts Greece rating to CC, outlook negative

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Standard & Poor's Wednesday cut Greece's sovereign credit rating further into junk territory, lowering it to CC from CCC, saying the European Union's proposed debt restructuring puts the country into a "selective default."

Euro zone leaders agreed on a second, 109 billion euro ($158 billion US) package for debt-stricken Greece last Thursday.

S&P said in a statement the outlook on the debt is negative.

Under the proposed restructuring, which would also require a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014, banks and insurers would voluntarily swap their Greek bonds for longer maturities at lower rates.

The firm views the restructuring as a "distressed exchange."

"In our opinion, the terms of both the exchange and rollover options appear unfavorable to investors," S&P said, adding, "Under our criteria, we characterize a distressed borrower as one that would-in the absence of debt relief-fail to pay its debt on time and in full."

S&P said the purchase of Greek sovereign bonds in the secondary market would not be viewed as a selective default because the transactions would be entered into voluntarily.

However, the firm said: "In our opinion, the likelihood of a future default on the new securities is likely to remain high."

"We anticipate that we would assign a low-speculative-grade rating to Greece, given our view that Greece will likely continue to be burdened by high debt to GDP (gross domestic product) of just under 130 percent of GDP at end-2011 and uncertain growth prospects even after the debt restructuring is concluded."

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