Selective default
A rating assigned by an agency to an issuer that has missed some obligations or imposed a distressed debt exchange while continuing to honor the others.
A distressed country or company does not always stop paying all its creditors at once. It can restructure a single class of securities, defer one payment, or offer an exchange that holders accept because the alternative would be worse. Rating agencies treat such transactions as default, even when holders consented, as long as they receive less than they were promised. S&P uses the SD rating, Fitch the RD rating, and Moody's adds a limited default indicator. The rating is usually temporary: it is raised once the exchange is complete, to a level that reflects the new debt. For a credit insurance policy or a derivative, this classification is not a loss event in itself: each contract applies its own definition of default.
On February 27, 2012, S&P cut Greece to selective default, after the passage of the law inserting retroactive collective action clauses into its Greek-law bonds. The agency raised the rating once the March 2012 exchange was complete, the new bonds being rated on their own risk.
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