Market Overview

Greece Closer To A Deal With Private Sector Bond Holders


Greece is edging closer to having enough of the private sector holders of the country's outstanding debt accept a debt restructuring deal would see the face value of their bonds take a major, while reducing the financial burden of the nearly bankrupt Greek government. The agreement is needed in order for Greece to avoid a potentially catastrophic default by receiving the latest round of bailout funds from the the European Union (EU) and the International Monetary Fund (IMF).

A group of 30 of Greece's largest private sector creditors who hold nearly 40 percent of Greece's outstanding debt announced on Wednesday that they would participate in the debt swap, bringing Greece closer to its goal of at least 75 percent participation in the debt swap. With Greece's largest banks and most of the country's pension funds now saying that they will agree to the deal as well, Bloomberg news reported today that 58 percent of the private sector holders of Greek debt plan to agree to the debt swap so far.

Greek Finance Minister Evangelos Venizelos complained that the Greek pension funds that refused to participate in the deal were sending a negative message to international investors but it is unlikely that the Greek hold outs will have much influence on other bond holders' decisions. Despite the Greek pension funds that are still refusing to accept the debt swap, the wide spread acceptance among major banks, insurance companies, pension funds and other institutional investors makes it more likely that Greece will reach its minimum goal of 75% voluntary participation in the deal by tomorrow's deadline.

The Greek government has warned hold out owners of Greek debt who are subject to Greek law that it could use collective action clauses to force them to accept the terms of the debt swap. However, a minority of about 10% of the private sector holders of Greek debt are subject to British or international, and many of these bond holders could decide against participating in the debt swap in hopes of getting a better deal.

The European Union and International Monetary Fund agreed to loan Greece another 130 billion euros last month but euro zone finance ministers made several demands that they say must be met before the funds are released, including private sector acceptance of the debt swap that would see the face value of the investors' bonds reduced drastically.

Euro zone finance ministers have said that Greece must come to a debt restructuring agreement with the holders of the country's debt, in which they accept a "voluntary" debt swap, by Thursday night in London before they will release the latest round of bailout funds to the troubled country. Greece needs to receive the bailout funds in order to avoid an all out default. The euro zone finance ministers plan to announce their decision during a conference call on Friday

The markets will surely react negatively if Greece doesn't get the voluntary participation in the debt swap that is required for the euro zone finance ministers to continue to prop up the Greek government.

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