While we still have to wait until Thursday to get a final number on how many of Greece’s private creditors will participate in a bond swap deal requisite for EU leaders to give the struggling country its bailout, a bunch of headlines today suggest that there’s trouble afoot.In particular, the big question is still whether Greece can get sufficient investor participation to go through with the deal at all.
Today, Greece’s finance ministry said it is planning to activate collective action clauses on Greek-law bonds—which would force investors to participate in the bond swap so long as enough of them agreed to the deal voluntarily—if it can. In contrast to the plans it had previously released, this would permit the Greek government to trigger these collective action clauses on bonds issued under Greek law with a quorum of 50 per cent of bondholders and just 66.6 per cent approval.
Such bonds make up €177.3 billion ($232.4 billion) of Greece’s debt issuances. Bondholders would take a 55.3 per cent haircut on these bonds, and so the restructuring would reduce Greece’s immediate debt burden by nearly €100 billion.
(These aren’t the only bonds at issue, however. About €18 billion issued under foreign (notably, UK) laws, on the other hand, require 75 per cent of all noteholders to agree to the CAC during meetings that will be held later in the month. [h/t @FGoria])
Bankingnews.gr also reported earlier today that Greek Finance Minister Evangelos Venizelos had called an extraordinary meeting between Greek bankers and government officials, in order to convince the latter that going through the deal is a necessity.
But his attempts may have fallen short. Later in the day, Reuters reported that at least four Greek pension funds—amounting to at least €2 billion—have refused to go ahead with the bond swap. These holdouts join hedge funds who bought issues of distressed Greek debt speculatively, who will not participate in order to reap the payouts of credit default swaps—insurance contracts they bought on Greek debt.
While analysts, on the whole, still expect Greece to get sufficient participation to be able to activate the CACs (regardless of the fact that these would probably provoke a credit event), the fact that the country is having difficulty in soliciting participation is nonetheless troublesome. Investors will be watching carefully for signs that Greece will or will not be able to go ahead with the deal.