Analyst says a ratings agency declaration of "restrictive default" not an issue

Fitch ratings agency declared on Friday (July 22) Greece would be in temporary default as the result of a second bailout, but the agency pledged to give Greece a higher, "low speculative grade" rating after its bonds had been exchanged and said Athens now had some hope of tackling its debt mountain.Investors took in their stride the Fitch statement that it would declare Greece in restricted default -- seen as an expected consequence of Thursday's (July 21) deal. One analyst said the rating was of no concern.

"I think it is a non event. I mean it was expected that Greece will go into restricted default or selective default and we take it in stride," said Chief Economist Michalis Massourakis of Greece's Alpha Bank.

Eurozone leaders agreed to give Greece a second bailout package late on Thursday of 109 billion euros, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

Under the bailout of Greece, which supplements a 110 billion euro rescue plan by the European Union and the International Monetary Fund in May last year, banks and insurers will voluntarily swap their Greek bonds for longer maturities at lower rates to help Athens.

"Fitch considers the nature of private sector involvement...to constitute a restricted default event," said David Riley, Head of Sovereign Ratings at Fitch. "However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces," he said.

The summit agreed the region's rescue fund, the European Financial Stability Facility, will be allowed to buy bonds in the secondary market if necessary and also to lend governments money to recapitalize banks. It can also for the first time give states precautionary credit lines before they are shut out of credit markets.

"To the extent that liquidity has been secured I think we are in a very good position. On top of that if there is any need for recapitalization the issue for the Greek banks does not seem to be out of proportion, that is, it's manageable. And in any case to the extent that some banks they will not be able to access markets to increase their capital the financial stability fund which has been established last year and was endowed with 10 billion euros, it seems now that it will be strengthened to 30 billion euros, so there's plenty of money to go around if there is a need for recapitalization. So I think for the banks it's a good development overall," said Massourakis of Greek banks after the agreement.

As part of the package, the euro zone leaders also made detailed provisions for limiting the damage of a temporary default -- the first in the 12-year history of the euro. Among other steps, the leaders agreed to ease terms on bailout loans to Greece by extending maturities and lowering interest rates.

Ratings agencies Standard & Poor's and Moody's are likely to follow Fitch's lead since banks and insurers are expected to write down the value of Greek bonds by around 20 percent, with more losses maybe to follow.

The ECB signalled it was willing to let Greece default temporarily as long as it was strictly a one-off.