Key Greek bondholders meet to reconsider debt deal

Charles Dallara, right, and Jean Lemiere from the Institute of International Finance, which represents Greece's private bondholders, leave Maximou mansion after a meeting with Greek Prime Lukas Papademos and Finance Minister Evangelos Venizelos in Athens, Friday, Jan. 20, 2012. Greece is confident a debt relief deal with private creditors that is crucial to avoid default can be reached "very soon," a government spokesman said Friday.

Πηγή: Kansas City
BY GABRIELE STEINHAUSER

Jan 25 2012

BRUSSELS -- Representatives of Greece's private sector bondholders will meet Wednesday to discuss how and whether to continue talks on a bond swap after the EU toughened its demands, a person close to the investors said.

The so-called steering committee of the Institute of International Finance will gather in Paris for an "important meeting ... to really take stock" of the talks, the person said on condition of anonymity because of the sensitivity of the issue.

The committee represents banks and other investment funds that hold a large part of Greece's debt and are being asked to swap their existing bonds with new ones of a reduced value, longer maturity and lower interest rate.

Eurozone finance ministers decided this week to cap the average interest rate on those new bonds at well below 4 percent. In their last offer, the bondholders said the average interest rate should be above 4 percent.

The finance ministers are pushing for a lower rate because whatever debt relief Greece doesn't get from the investors will have to come from them and the International Monetary Fund, the country's bailout rescuers.

The eurozone and the IMF, however, have made clear that they would not increase their loans for Greece above the euro130 billion ($169 billion) tentatively agreed in October.

The person close to the private bondholders said the meeting was called for Wednesday because some eurozone officials wanted the deal to be ready for a summit of EU leaders on Monday.

The bond swap is crucial to cut Greece's debt by some euro100 billion ($130 billion) and bring it back to a sustainable level. The plan is to have private investors exchange their old Greek bonds for ones with half the face value and to push repayments 20 to 30 years into the future.

A higher interest rate could help buffer losses for investors, but the eurozone and the IMF say it will prevent Greece's debt from falling to 120 percent of gross domestic product by 2020 - the maximum level they see as sustainable. Without the debt swap, Greece's debt would approach 200 percent of GDP by the end of this year.

So far, all sides in the negotiations have been trying to make the bond swap a voluntary deal.

If the investors decide against moving voluntarily accepting the eurozone ministers' tougher terms, the eurozone would face a stark choice between a forced default by Greece or new, bigger aid payments to Athens.

In a forced default, bondholders would likely stand to lose an even bigger part of their investments, though some of them would get payments from bond insurance, the credit default swaps, or CDS.

The eurozone has so far worked hard to prevent a payout of CDS, since the CDS market is obscure - without a clear picture of who owes what to whom - and they worry that it could create uncertainty and panic on financial markets. The private investors also argue that a forced default would make investors more reluctant to lend to Greece and other vulnerable euro countries.