Hungary Downgraded by S&P as Carnage on European Sovereign Debt Continues

Standard and Poor's, one of the top credit rating agencies in the world, announced today it was lowering the sovereign credit ratings on the Republic of Hungary, slashing that government's debt to junk debt status. The agency also assigned the nation's debt with a recovery rating of 3, meaning it expects investors to be able to obtain from 50 to 70 percent of the country's bonds face value in the event of a default.

In the statement announcing the downgrade, S&P added it sees a one-in-three possibility that it will downgrade the country further into junk status within the year.

Hungary has been on the edge of sovereign credit crisis ever since the nation received a bailout in 2008 to avert a default on its bonds. The government has also passed a series of banking sector laws that have been controversial with European authorities, including one that allowed local mortgage-holders to repay foreign banks a fraction of what they owed them and another that critics said threatens central bank independence.

Both Moody's and Fitch Ratings currently have Hungary holding the lowest-possible investment-grade rating.

A cut from an investment-grade rating to junk status is significant for debt issuers, as many large institutional investors are limited, by either charter or law, to putting their assets only in investment-grade securities.