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Greece inched nearer to a successful €206bn debt restructuring after private sector bondholders representing almost 40 per cent of securities said they were backing the deal.
Banks, insurers and asset managers holding €81bn in Greek debt have agreed to exchange their bonds for new instruments that will leave them with losses of about 75 per cent.
The list of 30 participants includes Allianz, BNP Paribas, Deutsche Bank, HSBC and Royal Bank of Scotland, as well as several Greek banks. Many of them had already publicly committed themselves to the deal but Wednesday’s statement marked the first time all the holdings had been added together.
The move came a day after Greece threatened to default on any of its bondholders who did not take part in the debt swap, a move that turned up the heat on potential holdouts ahead of a deadline on Thursday.
The Greek public debt management agency said Athens “does not contemplate the availability of funds” to pay private investors who hold on to their bonds once the restructuring occurs.
The threat is particularly aimed at 14 per cent of investors who own Greek bonds issued under international law. The remaining 86 per cent, who own €177bn in Greek-law bonds, were also warned that Athens would use new legal provisions, called collective action clauses (CACs), to force the deal on holdouts.
The transaction is projected to wipe €100bn from Greece’s debt pile, but 95 per cent of bondholders must participate for that target to be reached.
People close to the deal said the tactics now were to ensure, through the use of CACs, that all of the Greek law bonds were included in the swap. That would mean participation would be at least 86 per cent. They also expect some foreign law bonds to be tendered, pushing the rate up to close to 90 per cent, a figure Athens might well claim is a success.
A Greek debt restructuring would mark the first time in more than 60 years a developed nation has defaulted on its obligations and would be a new nadir in the two-year long eurozone crisis.
People close to the restructuring, which will occur when investors trade in their current bond holdings for new debt with about half the face value, described the debt management agency’s statement as aggressive. “It’s a tactical move intended to ratchet up the pressure on bondholders who may be wavering,” one said. “The idea is that the higher the overall participation rate, the weaker the case will be for future litigation by holdouts.”
“There is no commitment not to pay, but there is a threat,” said Charles Blitzer, a former senior IMF official. “If you don’t maximise participation, you’re asking for more stress in the programme or more [bail-out] money from the official sector.”
Many of the potential holdouts in the international law bonds are hedge funds who bought on the hope of being paid back in full, while investors with Greek-law securities would accept long-term losses of about 75 per cent.
“They will be portrayed as evil hedge funds and nobody will have any pity for them. They need to realise that they don’t have a free option here,” another person close to the deal said.
The offer closes on Thursday and the CACs could be triggered on Friday; the new bonds investors will get in the swap are due to start trading on Monday.
Using the CACs would almost certainly trigger credit default swaps, a form of insurance that could prove more lucrative for some holdouts but could lead to renewed market uncertainty.
Markets recovered somewhat on Wednesday after equities in Europe and the US suffered their worst day of the year on Tuesday. The FTSE Eurofirst 300 was up 0.4 per cent on Wednesday lunchtime while Italian benchmark bond yields moved below 5 per cent again, although Spain’s remained above that level.
Additional reporting by Peter Spiegel