Private Investors Said to Agree to Swap 85% of Greek Debt

By Maria Petrakis - Mar 9, 2012 1:50 PM GMT+0700

The Greek government said it reached its target in the biggest sovereign restructuring in history, with a 95.7 percent participation rate among investors after it received approval to activate collective action clauses.

Bondholders tendered 152 billion euros ($201 billion) of Greek-law bonds, or 85.8 percent of the total, after the government offered to swap their holdings for new securities under the debt exchange. Twenty billion euros of foreign-law bonds were also tendered, according to an e-mailed statement from the Greek Finance Ministry.

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The Acropolis in Athens. Photographer: Petros Giannakouris/AP

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March 9 (Bloomberg) -- John Wraith, a fixed-income strategist at Bank of America Merrill Lynch, talks about the restructuring of Greece's sovereign debt. He speaks with Owen Thomas and Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

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March 9 (Bloomberg) -- The Greek government said it reached its target in the biggest sovereign restructuring in history, with a 95.7 percent participation rate among investors after it received approval to activate collective action clauses. Nicole Itano reports on Bloomberg Television's "Countdown" with Linzie Janis and Owen Thomas. (Source: Bloomberg)

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Pedestrians pass the headquarters of Greece's central bank in Athens, Greece. Photographer: Kostas Tsironis/Bloomberg

The euro was down 0.3 percent at $1.3239 after the release at 8:40 a.m. in Athens. Asian stocks rose for a second day.

“I wish to express my appreciation to all of our creditors who have supported our ambitious program of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavor,” Finance Minister Evangelos Venizelos said in the statement. He is due to hold a press conference at 1 p.m. Athens time.

With Greece again the focus of the euro-area debt crisis now in its third year, the goal of the exchange was 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.

Forced Into Swap

While Prime Minister Lucas Papademos’s government had said it would prefer a voluntary deal, it indicated a readiness to use collective action clauses to force holders of Greek-law bonds into the swap if the private sector involvement fell short and it got approval from investors to change the bonds’ terms. The government said it wanted participation above 90 percent and was seeking a minimum level of 75 percent.

The International Swaps and Derivatives Association said the determinations committee will meet at 1 p.m. London time to consider a “potential credit event” relating to Greece. European finance ministers will hold a conference call at the same time to discuss the swap result.

“The market had already priced this in,” Pawan Malik, managing director of Navigant Capital, said in an interview on Bloomberg Television’s “Countdown” with Owen Thomas and Linzie Janis. “There was a small possibility that for whatever reason, the participation would be so high that the CACs may not need to get triggered,” he said. “For the markets this may be a mild negative today.”

BNP Paribas, Commerzbank

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 (CBK), had said they would agree to the offer before it closed yesterday at 10 p.m. Athens time.

In the exchange, investors will receive new bonds with a face value of 31.5 percent of the old ones together with notes from the European Financial Stability Facility. The new debt is governed by English law and comes with warrants that will provide extra income in years when Greek economic growth exceeds thresholds. The net present value loss for investors is more than 70 percent.

The swap is meant to help reduce Greece’s debt to 120.5 percent of gross domestic product by 2020. Greece is now in its fifth year of a recession.

To contact the reporter on this story: Maria Petrakis at mpetrakis@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net