Standard & Poor's cut Greece's already junk-level debt rating to "selective default" Wednesday after the country launched an operation to buy back debt at a big discount.

Greece was cut from CCC, the lowest level before default, S&P said, because its invitation to investors to sell back the Greek bonds they hold at discounts to face value "constitutes the launch of what we consider to be a distressed debt restructuring."

"The offer, in our view, implies the investor will receive less value than the promise of the original securities; and we believe the offer is distressed, rather than purely opportunistic."

For the same reason, S&P ruled Greece in default on 20 specific bond issues involved in the buyback, "notwithstanding that investors may technically accept the offer voluntarily."

S&P said the sovereign rating would likely go back to CCC when the buyback is completed, around December 17, resolving any questions raised by the debt buyback and potentially lowering Greece's debt burden.

"Any potential upgrade to the 'CCC' category rating would reflect, among other factors, our view of the debt relief that is being delivered through the buyback and its contribution to putting the sovereign's public finances on a sustainable footing," the rating firm said in a statement.

On Monday Greece began the operation to repurchase its debt at cut-rate prices, with the aim of lowering its interest costs as part of a repackaged rescue plan to avert bankruptcy before the end of the year.

The national PDMA debt agency was offering to buy back Greek bonds from private investors on a voluntary basis, but there was uncertainty over whether enough investors would accept the terms.

The buyback is a condition for Greece to receive its latest installment of EU-IMF bailout funds. (AFP)