Greece’s Creditors Resist Push From IMF for More Losses

By Christos Ziotis, Marcus Bensasson and Jesse Westbrook - Dec 22, 2011 7:01 AM GMT+0700

Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the indebted nation’s government bonds, said three people with direct knowledge of the discussions.

Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said the people, who declined to be identified because the negotiations are private.

The IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio to 120 percent by 2020, a key element of the Oct. 27 agreement by European Union leaders, the people said.

Greece’s debt will balloon to almost twice the size of its economy next year without a write-off accord with investors, the IMF said on Dec. 13. The IMF and EU leaders are trying to bring the country’s debt down to a sustainable level.

As part of Greece’s 130 billion-euro second bailout, investors would take a 50 percent hit on the nominal value of 206 billion euros of privately owned debt. Exchanging bonds for securities with a 5 percent coupon would leave investors with a 65 percent loss in the net present value of their holdings of Greek government debt, the people said.

Seniority Agreement

Both sides have agreed that the new bonds should be governed by British law and that private bondholders should have the same seniority after the swap as the IMF and the European Financial Stability Facility, two of the people said.

The sides have also agreed that the deal should include collective action clauses that would ensure lenders participate in the swap, the people said.

Vega Asset Management LLC resigned this month from a committee of Greek creditors negotiating the debt swap with European authorities, because the Madrid-based hedge fund refused to accept a net present value loss exceeding 50 percent, according to a Dec. 7 e-mail sent to other panel members, which was obtained by Bloomberg News.

The committee includes representatives of AXA SA (CS), Commerzbank AG (CBK), ING Groep NV (INGA) and the National Bank of Greece SA.

“Vega needs to start considering all available legal options to refuse and challenge any exchange” that leads to a loss of more than 50 percent, Vega wrote in the e-mail. “Vega wants to avoid any conflicts of interest where its own legal strategy could compromise the ability of other members of the committee to reach an agreement.”

Vega Chief Executive Officer Ian Shackleton declined to comment on the hedge fund’s resignation from the committee.

To contact the reporters on this story: Christos Ziotis in Athens at cziotis@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net; Jesse Westbrook in London at jwestbrook1@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Edward Evans at eevans3@bloomberg.net