S&P knocks Cyprus down to 'selective default'

NEW YORK Standard & Poor's has lowered its credit rating on Cyprus, knocking the debt-stricken island country from the lower rungs of junk status into "selective default" because of an announced debt exchange.

The Cypriot government is swapping some local bonds for longer-term bonds. Though that eases some of the immediate liquidity pressure on Cyprus, the S&P analysts said they thought the new bonds were on "less favorable terms" for Cyprus than the existing bonds and that it was a "distressed exchange."

Cyprus agreed to a 23 billion euro ($30 billion) bailout deal in March with its eurozone partners and the IMF.

The S&P analysts said they could raise their rating on Cyprus back up into junk status if the exchange goes through as planned.