Standard and Poor's on Monday placed Greece in a selective default after the government retroactively inserted clauses in some of its bonds that empower it to force bondholders to take losses on their investment.

Athens, as part of a deal last week to get about $172 billion in rescue money, inserted so-called collective action clauses in the documentation of some of its sovereign bonds. Those clauses empower Greece's government to force unwilling bond holders to take a loss on their investment if a sufficiently high percentage of other bond holders agree to such a loss.

We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses in the documentation of certain series of its sovereign debt, the New York credit rating agency said in a statement.

The agency said that if bond holders agree to take a loss it will raise the nation's sovereign credit rating to CCC, from CC and C.

But, S&P said, if a sufficient number of bondholders do not accept the exchange offer, we believe that Greece would face an imminent outright payment default, the Financial Times reported.

Athens said the downgrade was expected and would not hurt its banks since the central bank had already made provisions for it.

This rating does not have any impact on the Greek banking system since any likely effect on liquidity has already been dealt with by the Bank of Greece, the Greek Finance Ministry said in a statement reported by Reuters.

S&P was following Fitch, which last week cut Greece's long-term ratings to its lowest rating above a default as a result of the bond exchange plan.

S&P also said that any possible upgrade to the 'CCC' category rating would reflect its view of Greece's uncertain economic growth prospects and still large public debt, even after the restructuring is concluded.