Moody’s Investors Service made some drastic cuts today in the ratings of Greek structured finance deals, significantly shortening the distance between the highest rated transactions and the sovereign.

An ASR article recently explored the maximum notching that, within the eurozone, rating agencies will allow a structured finance transaction above the sovereign in which its assets are domiciled.

In the case of Greece, the uplift above the government had hit nine notches at Moody’s by the end of the year, the difference between ‘Ba1(sf)’ and the sovereign’s ‘Ca.’ The gap was nearly as wide for the other agencies.

Citing a more heightened risk of a disorderly default, Moody’s said that now the rating for any Greek structured finance deal could not surpass ‘B1(sf),’ making the current maximum differential six notches. In practice, however, the agency left no structured finance rating in Greece above ‘B2(sf).’

“In the event of a disorderly default, the functioning of the banking system and the state could be materially impaired, and the economy would very likely experience a further sharp contraction,” the agency said. “A disorderly default would also increase the likelihood of Greece exiting the euro area, accompanied by a return to a deeply devalued national currency.”

Moody’s said Greece abandoning the euro is still only a remote — albeit rising — possibility. At any rate, any sort of disorderly default would put additional pressure on Greek borrowers by further damaging the economy.

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