Greek investors agree to bond swap

Fri, Mar 9, 2012, 00:00

INVESTORS HOLDING more than three-quarters of Greece’s private debt have agreed to participate in the country’s €206 billion debt restructuring, allowing Athens to proceed with the largest sovereign default in history.

The Greek government was expected to announce the results of its two-week campaign to win over private investors this morning. But according to Greek officials and bankers briefed on the results, as of yesterday evening investors controlling almost 80 per cent of the country’s privately held debt had agreed to accept new bonds worth less than half their original holdings.

“It will be good news tonight,” said one Greek cabinet minister. “Take-up will be around 80 per cent.”

Another person involved in the deal said the acceptance rate could reach 85 per cent.

Athens is now expected to trigger recently legislated “collective action clauses” (CACs), which give it the power to impose a 53.5 per cent loss on all holders of bonds issued under Greek law. In order to use the CACs, Athens needed agreement from investors holding two-thirds of all bonds voted.

Once CACs are triggered, all €177 billion worth of bonds issued under Greek law will be swapped for a cash payment equivalent to 15 per cent of investors’ original holding. They will also be issued new Greek debt worth 31.5 per cent of their old bonds. The measures will wipe about €100 billion from Athens’ €350 billion debt pile.

“This extraordinarily difficult deal . . . allows Europe to avoid what could have been an enormously costly, disorderly default,” said Charles Dallara, the chief negotiator for Greek bondholders.

In another sign that a deal was imminent, the European Central Bank began to reaccept Greek bonds as collateral from banks seeking cheap loans to run their day-to-day operations. – (Copyright The Financial Times Limited 2012)