December 22, 2011

Greece’s Creditors Resist IMF Push for Bigger Losses

Hedge fund pulls out of debt swap talks

Greece’s creditors are pushing back against an International Monetary Fund (IMF) drive to get them to accept larger losses on the country’s sovereign debt, with one Madrid-based hedge fund pulling out of the debt swap talks over the matter.

Holders of Greek sovereign debt are holding out for coupons of 5% on 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities, Bloomberg reported. But the IMF is urging them to accept a smaller coupon so that Greece’s debt-to-gross domestic product ratio can be cut to 120% by 2020, according to people familiar with the discussions.

Such an arrangement was a key element of the agreement reached by European Union (EU) officials on Oct. 27. The IMF said on Dec. 13 that without such a write-off, Greece’s debt will rise to almost twice the size of its entire economy in 2012.

Madrid-based Vega Asset Management LLC resigned this month from a committee of Greek creditors engaged in the negotiations over the debt swap wiith European authorities. Hedge fund officials said that they would not accept a net present value loss that was higher than 50%, and were quoted in an e-mail saying, “Vega needs to start considering all available legal options to refuse and challenge any exchange” that leads to a loss of more than 50%.

They continued, “Vega wants to avoid any conflicts of interest where its own legal strategy could compromise the ability of other members of the committee to reach an agreement.”

Other members of the committee include representatives from AXA SA, Commerzbank AG, ING Groep NV  and the National Bank of Greece SA.

Reprints Discuss this story
This is where the comments go.