Greece restructures its debt

London, March 9: Greece said today that it had clinched a landmark debt restructuring deal with its private sector lenders. The deal clears the way for the release of bailout funds from Europe and the IMF that will save the country from imminent default.

The Greek finance ministry said that 85.8 per cent of private creditors holding 177 billion euros in Greek bonds participated in the bond swap. After invoking collective action clauses, provisions that will force the holdouts to accept the offer, the participation rate would rise to 95 per cent and meet the target set by Europe and the IMF for the release of crucial rescue funds.

The ministry also said that 69 per cent of investors holding a category of Greek bonds issued under laws other than Greek law had agreed to the exchange ? or about 20 billion euros worth. This figure is much higher than anticipated because many of these investors were expected to either challenge Greece in court or hold out for better terms.

Greece said it would extend the invitation period for these foreign law bond holders to March 23. Ramping up the pressure on these investors, Greek finance minister Evangelos Venizelos said that after this date, the offer to foreign law bond holders to participate in the bond swap would be withdrawn.

For Greece, the better than expected numbers highlights the success of the aggressive legal strategy to force bond holders to take up the exchange even though they would accept a big loss in the process. Seen at first as a risky gambit that could end up badly, the take-it-or-leave-it approach ? mixed in with tough rhetoric from public officials in Greece and Europe ? proved to be highly effective as it forced even the most reluctant investors to tender their bonds.

?I wish to express my appreciation to all of our creditors who have supported our ambitious programme of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavour,? Venizelos said.

The participation rate is a level that few would have predicted weeks ago. Greece will still need to impose so-called collective action clauses, but to pull that trigger with nearly 86 per cent will put Greece in a much better position legally if some investors challenge the swap.

The International Swaps and Derivatives Association, the global body that oversees the credit default market, said it will meet in London to discuss whether the use of this amendment to force investors to take part in the exchange constitutes a credit event ? one that would result in an estimated 3 billion euros in claims being paid out to investors. Market analysts have long expected that the use the use of collective action clauses would mean that credit default swaps ? insurance like payments that are paid when a country defaults ? would be triggered.

Still, the relatively low sum and the fact that such a scenario has been widely expected suggests that any such judgment will be treated with relative equanimity by investors.

Petros Christodoulou, the head of Greece?s debt management agency, had told wavering bondholders that there will be no sweetheart deals for holdouts.

Source: http://www.telegraphindia.com/1120310/jsp/foreign/story_15231707.jsp

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