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Charles Dallara, the head of the Institute of International Finance, says he’s positive that 70-80% of private bondholders will voluntarily take a 50% haircut on their holdings of Greek debt, according to Reuters (via @FGoria).That sounds optimistic, but such participation could prevent the occurrence of a credit event.
Bondholders must participate voluntarily if the bond swap if the country wants to avoid provoking a credit event, where credit default swaps would be payed out on bonds. But preliminary participation surveys for a previous plan that would impose just 21% haircuts fell short of the level demanded by Greek officials. In fact, only around 80% of bondholders said they would actually participate in that plan.
While officials have said that there are lots of “sweeteners” in the bond swap deal to induce investors to participate, we’re sceptical that participation will live up to the numbers Dallara is talking about here. Up until now, we’ve heard more and more rumours that this bond swap might end up being coerced regardless of CDS implications.
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