Standard & Poor’s lowered its credit rating on Cyprus on Friday, knocking the debt-stricken island country into “selective default” because of a “distressed” debt exchange.
The Cypriot government is swapping some local bonds for longer-term bonds. Though that eases some of the immediate liquidity pressure on Cyprus, the S&P analysts said they thought the new bonds were on “less favorable terms” for Cyprus than the existing bonds. They called it a distressed exchange, implying that Cyprus had to swap its debt because it had few other financing options.
The country’s rating already was in “junk” status, but Friday’s move pushed it down three levels, from “CCC” to “SD,” or selective default.