Moody's cuts Greece rating deeper into junk territory

Moody's has cut its credit rating for Greece to a deep-junk "Caa3", warning it is now less likely that official creditors will support the country, whatever happens in Sunday's referendum.

The one-notch cut took Greece's rating to just two steps above "default", and came after both the expiration of the country's European Union bailout program without a replacement on Tuesday, and Athens's default on its debt to the International Monetary Fund.

While the country and official creditors are now awaiting the results of the upcoming referendum on accepting a recast EU rescue plan, Moody's said yesterday the referendum "adds a further, more acute, risk to private creditors." "Moody's believes that without ongoing support from official creditors, Greece will default on its privately-held debt," the ratings agency said.

It said it will review the outcome of the referendum for a possible further downgrade, with the next step being "Ca", indicating "default imminent." A "no" vote on Sunday, Moody's said, "would likely increase the risk of exit from the euro area which would impose significant losses on private sector creditors."

Moody's downplayed the prospects of a new deal between the country and creditors, even as the two sides continue to entertain new proposals.

Recent events "have illustrated the distance between what Greece's official creditors will demand as a condition of continued support over the coming years, and what Greece's institutions are able to do to meet those demands with further meaningful economic and fiscal reforms."

"This creates significant difficulties for the achievement of a long-lasting support agreement," it said.