07 March 2012

FTAdviser: Athens issues threat to bond holdouts

Greece has threatened to default on any of its bondholders who do not take part in a €206 billion debt restructuring that officials believe is key to returning Athens to solvency, a move that turns up the heat on potential holdouts ahead of a deadline.

The Greek public debt management agency said in a statement that Athens “does not contemplate the availability of funds” to pay private investors who hold on to their bonds once the restructuring occurs. The transaction is projected to wipe €100 billion from Greece’s debt pile, but 95 per cent of bondholders must participate for that target to be reached.

There is no commitment not to pay, but there is a threat”, said Charles Blitzer, a former senior IMF official. “If you don’t maximise participation, you’re asking for more stress in the programme or more [bailout] money from the official sector.”

The threat is particularly aimed at 14 per cent of investors who own Greek bonds issued under international law. The remaining 86 per cent, who own €177 billion in Greek-law bonds, were also warned that Athens would use new legal provisions, called collective action clauses, to force the deal on holdouts. That would almost certainly trigger credit default swaps, a form of insurance that could prove more lucrative for some holdouts but could lead to renewed market uncertainty.

A Greek debt restructuring would mark the first time in more than 60 years that an advanced economy has defaulted on its obligations, and would be a new nadir in the two-year long eurozone crisis.

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© Financial Times