Defaulting Sovereigns Risk Second Restructuring
According to Moody’s rating agency, over one third of the 30 sovereign distressed exchanges since 1997 have been trailed by a second default scenario. Elena Duggar, group credit officer at Moody’s said, “When the initial debt exchanges were small in relation total debt, they were followed by further exchanges of private or official debt, even when the haircuts in the initial exchange were large….why ratings often remain low, in the Caa to C rating range, following distressed exchanges.” Norbet Barthle, Germany’s parliamentary budget spokesman said that Greece might need additional write downs even though the topic is not under discussion amongst the EU and the ECB. There are traditionally two tactics involved with distressed debt exchanges, maturity extensions and principal haircuts. Maturity extensions have been more common, but Greece has implemented both strategies in its restructuring. Greece’s nominal write-downs in March reached 53.5% placing it just behind the Ecuador buyback of 65% in 2009 and the Argentinean debt exchange at 66% in 2005. Duggar says “it was rare that defaults were resolved quickly and in one round.” The future of the Euro-zone, EU, ECB, and their constituents is uncertain and statistically there is still a chance for more action needed in Greece. The sovereign debt crisis is not going away anytime soon and many people saving for retirement need a safety net type investment vehicle like an indexed annuity. For more information on how to maximize a nest egg in the current economic landscape visit the Annuity Think Tank.
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