Greek Debt Swap Success Called Likely

Collective action clauses may still be triggered

Enough holders of Greek sovereign debt have now signed on to the debt swap deal that is a prerequisite for a second bailout that success seems likely. However, there is still a chance that collective action clauses may be triggered.

Bloomberg reported late Wednesday that investors with approximately 60% of outstanding debt have now indicated that they will accept the terms of the swap, including the country’s largest banks, most of its pension funds, and more than 30 European insurers and banks. So far that amounts to about 124 billion euros ($163 billion), according to Bloomberg compilations.

The deal remains open till 10 p.m.  Athens time (3 p.m. EST) on Thursday. Christoph Rieger, head of fixed-income strategy for Commerzbank, was quoted saying, “Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared.”

The deal is structured so that investors holding at least 50% of eligible bonds must vote on the swap, and 66% of those voting must agree to the exchange in order for CACs to be triggered to compel the rest to participate.

There are, of course, some holdouts. They could end up triggering credit default swaps that would result in a default for Greece, with unpredictable results. Still, Hans Humes, president of Greylock Capital Management, expects holders of more than 80% of Greece’s government bonds to accept the swap. Humes is a member of the private bondholder committee involved in negotiations with the Greek government over the arrangement.

Charles Dallara, head of the Institute for International Finance, which represents some 450 financial firms around the world and represented private creditors in the negotiations, was quoted saying that the swap provides “a moment for a real turning of the page,” that should permit Greece to “regain some economic vitality.”

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