Greek bond U-turn infuriates creditors

Tue, May 15, 2012, 01:00

Greece made a last-minute decision today to pay bondholders who refused to accept a debt restructuring, a move that may set a precedent and infuriate creditors who accepted just cents on the euro for their investment in a historic bond swap.

In an about-face, Greece opted to pay holders of €430 million of a May 15th bond, despite having told those who took its bond swap offer in March that they would otherwise get nothing, government officials said.

The decision averts litigation by the bondholders, and will infuriate the 96.9  per cent of creditors, mainly European banks, who agreed to take the deal.

"Greece's strategy has been to openly say that it won't pay holdouts, possibly in the hope at least some of them would go away," said Steven Friel at legal firm Brown Rudnick, who advises creditors holding other Greek bonds that were not exchanged under the swap.

"This decision sets a commercial, if not a legal, precedent that they are willing to meet their obligations to pay bondholders in full for the other international law bonds that will mature in coming years," he said.

A source close to private creditors involved in the swap, who declined to be identified, called it "scandalous" and wished Greece "good luck for the next restructuring".

Greece completed a huge debt restructuring in early March, swapping a nominal amount of €177 billion of government paper held by private creditors for new securities as part of its second rescue package.

Nearly all bondholders agreed to suffer a loss of 75 per cent after being told they had no choice. A few held out, however, demanding to be paid in full. That left about €6 billion worth of bonds that the Greek government must now decide how to handle.

With no new government in place following an inconclusive national election last week, the decision fell to outgoing prime minister Lucas Papademos, a technocrat who headed a coalition government of socialists and conservatives.

Outgoing finance minister Fillippos Sachinidis had pressed for a decision before yesterday's Euro group meeting.

Former finance minister Evangelos Venizelos, who heads the socialist Pasok party, recommended not paying holdouts on grounds of fair treatment towards bondholders who took part in the swap, minutes of a meeting between political leaders and president Karolos Papoulias on Sunday showed.

Political leaders finally asked Mr Papademos for a written recommendation on what to do. The May 15th Hellenic Republic pays a coupon based on three-month Euribor +8 basis points.

There was no official announcement on paying the bond or what Greece would do for remaining holdouts. No reason was given for repaying the bond.

Reuters