February 22, 2017 / 4:34 PM / 9 months ago

Move back to franc could trigger French default warns S&P

LONDON, Feb 22 (Reuters) - A move by France to pay its debt into a new version of the franc would result in a default rating, S&P Global said on Wednesday, though continuing to pay bondholders in euros could see it avoid that label.

French presidential hopeful Marine Le Pen - one of two candidates likely to make a May election run-off - has said she would take France out of the euro if she won and denominate its national debt in a new currency.

“Were a government to unilaterally decide to pay a euro-denominated instrument in a another currency contrary to the original terms of the instrument, S&P Global Ratings would, under its criteria, view this as a breach of the terms of the instrument and therefore a default,” S&P’s chief sovereign analyst Moritz Kraemer said in a report.

He added that a more technical “selective default” was more common for governments than a plain vanilla default because defaulting sovereigns often continue to service at least some of their debt.

Kraemer said even if a country decided to change its currency, default could be avoided if the country continued to service its legacy debt in the contractually agreed currency. (Reporting by Marc Jones; Editing by John Geddie)

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