Greece Swap Deadline Looms

Holders of at least 60% of the debt have agreed to swap.

The Greek government’s deadline for the biggest sovereign restructuring in history approached with a majority of investors signaling their readiness to participate in the debt swap.

The euro and stocks gained before the offer’s close at 10 p.m. in Athens today as Greek Prime Minister Lucas Papademos told his Cabinet ministers that Greece had made “an appropriate framework with significant incentives” for bondholders.

“For this reason I look forward to the maximum possible participation of the private sector,” Papademos said, according to an e-mailed transcript of his comments. Finance Minister Evangelos Venizelos told Parliament that “a historic process will be completed tonight,” and the results announced tomorrow.

Holders of at least 60 percent of the Greek bonds eligible for the deal, including Greece’s largest banks, most of the country’s pension funds and more than 30 European banks and insurers including BNP Paribas SA and Commerzbank AG, have agreed to the offer so far. That brings the total to at least 125 billion euros ($166 billion), based on data compiled by Bloomberg from company reports and government statements.

Participation is running at more than 75 percent and may surpass 80 percent, the state-run Athens News Agency reported, without saying how it got the information.

“The swap will go through if the rate is over 75 percent,” Dirk Becker, an analyst with Kepler Capital Markets in Frankfurt, said by phone. “Greece pulling it off by the skin of their teeth will still reassure the markets.”

With Greece again the focus of the euro-area debt crisis now in its third year, the goal of the exchange is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent. Together with a 130 billion-euro second Greek aid package, the writedown is a key element in European leaders’ efforts to turn the tide against the crisis that has roiled Europe, forcing Ireland and Portugal to follow Greece in requiring bailouts.

While Greece would prefer a voluntary deal, the government has said it will use so-called collective action clauses to force holders of Greek-law bonds into the swap if the private sector involvement falls short and it gets sufficient approval from investors to change the bonds’ terms.

Under the rules of the exchange, investors holding at least 50 percent of the eligible bonds must vote on the swap, and 66 percent of those must agree to amend the bonds to enable the government to impose the collective action clauses, said Christoph Rieger, Commerzbank’s head of fixed-income strategy.


Hurdles Cleared

“Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared,” Reiger said.

The 17-nation euro strengthened the most in two weeks against the dollar before the deadline, gaining 0.9 percent to $1.3262 as of 7:29 p.m. in Berlin. European stocks rallied the most in a month, with the Stoxx Europe 600 Index advancing 1.6 percent to 264.16 at the close in London.

“The fact is the markets had a very long time to be prepared for this,” Janet Henry, chief European economist at HSBC Holdings Plc, said in a Bloomberg Television interview. “There’s a lot more optimism in markets relative to where we were at the end of last year.” She cited the “breathing space” provided by the European Central Bank’s liquidity offer for banks.

In Frankfurt, ECB President Mario Draghi said it would be “completely inappropriate” to comment on the Greek debt swap since “the operation is unfolding.”

The Greek government has said it wants participation above 90 percent and is seeking a minimum level of 75 percent. Greece expects holders to accept the offer and is ready to force them if necessary, Venizelos said in an interview earlier this week.

Hans Humes, president of Greylock Capital Management, expects holders of more than 80 percent of Greece’s government bonds to accede to the swap, he said in a Bloomberg Television interview yesterday. Humes is a member of a committee of private bondholders that negotiated the deal with the government.

Niek Hoek, chief executive officer of Amsterdam-based Delta Lloyd NV, said today the insurer plans to take part in the swap deal on condition that the CAC clause applies to all parties.

“We have indicated we will participate if everyone else does,” he told reporters on a call. “Our base case expectation is the clause will be declared applicable and that the debt will be restructured in that fashion.”


Banks, Insurers

Greece’s six largest banks, cumulatively the biggest private holders of the country’s debt, plan to accept the offer, the Finance Ministry said March 6. Greek pension funds with about 17 billion euros of bonds will also join, Venizelos said on Real FM Radio yesterday.

More than thirty banks and insurers that were on the private creditor-investor committee for Greece plan to accept the swap, according to an e-mailed statement from the Institute of International Finance yesterday. Those investors hold an aggregate 84 billion euros of bonds, said the Washington-based IIF, which represents more than 450 financial firms globally.

Some investors are probably still evaluating Greece’s offer, Charles Dallara, the IIF’s managing director, told reporters in Rio de Janeiro today. Investors should believe the Greek government when it says this is the final offer, he said. He reiterated that he expects a high level of participation, without giving a specific number.

Investors who participate will get new bonds with a face value of less than half the previous securities, longer maturities and reduced interest rates, leading to a net present value loss of more than 70 percent. The new bonds do come with warrants that will provide extra income in years when Greek economic growth exceeds certain thresholds.

The amount of the country’s bonds issued under other than Greek law totals 29 billion euros, or 14 percent of the amount eligible for the swap, Frankfurt-based KfW said, citing the swap invitation memorandum. Those bonds are governed by different rules and wouldn’t be subject to the collective action clauses that were retroactively added to the Greek-law securities.

“I do fully expect to be part of the collective action clause,” Patrick Armstrong, managing partner at Armstrong Investment Managers in London, said yesterday in a Bloomberg Television interview. He said he wouldn’t voluntarily join in the swap because of the “minuscule” chance his bond maturing March 20 will be redeemed at face value.

Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit default swaps.

“We don’t see the Greeks failing to get a deal because the risk for everyone involved is just too high,” Tobias Basse, a cross market strategist at Norddeutsche Landesbank, said today in a telephone interview.


Bloomberg News



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