NEW YORK (Reuters) - Standard & Poor's on Friday downgraded the sovereign foreign currency credit rating on Cyprus to SD (selective default) from CCC following the Mediterranean nation's debt exchange as part of a financial adjustment program.
The decision follows Thursday's announcement by Nicosia that it was launching a debt exchange swapping 1 billion euros ($1.30 billion)of government bonds for new, longer-dated debt, to help it meet one of the conditions for its bailout program.
"In our opinion, the exchange materially changes the terms of the affected debt and constitutes what we consider a distressed exchange according to our criteria," S&P said in a statement.
S&P said that after the exchange, which is expected to occur on July 1, the liquidity strains on the government should be alleviated.
"We note, however, that the government will still need to deal with the forthcoming rollover of a stock of 950 million euro Treasury bills (5 percent of GDP)," S&P said.
After the exchange, the rating is expected to rise to CCC-plus.
Cyprus became the fourth euro zone member state to secure international financial assistance in March, agreeing to a 10 billion euro aid program with the International Monetary Fund and the European Union.
Cyprus is currently rated Caa3 with a negative outlook by Moody's Investors Service. Earlier on Friday, Fitch Ratings lowered its rating on Cyprus to RD (Restricted Default) from CCC, citing the debt swap.
($1 = 0.7693 euros)
(Reporting By Daniel Bases, Luciana Lopez and Pam Niimi; Editing by Theodore d'Afflisio)