Greece closes in on debt swap as investors agree to offer

Participation Rate

Hans Humes, president of Greylock Capital Management, expects holders of more than 80% of Greece’s government bonds to accede to the swap, he said in a Bloomberg Television interview yesterday. Humes is a member of a committee of private bondholders that negotiated the deal with the government.

Niek Hoek, chief executive officer of Amsterdam-based Delta Lloyd NV, said today the insurer plans to take part in the swap deal on condition that the CAC clause applies to all parties.

“We have indicated we will participate if everyone else does,” he told reporters on a call. “Our base case expectation is the clause will be declared applicable and that the debt will be restructured in that fashion.”

Greece’s six largest banks, cumulatively the biggest private holders of the country’s debt, plan to accept the offer, the Finance Ministry said March 6. Greek pension funds with about17 billion of bonds will also join, Finance Minister Evangelos Venizelos said on Real FM Radio yesterday.

Banks, Insurers

More than thirty banks and insurers that were on the private creditor-investor committee for Greece plan to accept the swap, according to an e-mailed statement from the Institute of International Finance yesterday. Those investors hold an aggregate84 billion of bonds, said the Washington-based IIF, which represents more than 450 financial firms globally.

Some investors are probably still evaluating Greece’s offer, Charles Dallara, the IIF’s managing director, told reporters in Rio de Janeiro today. Investors should believe the Greek government when it says this is the final offer, he said. He reiterated that he expects a high level of participation, without giving a specific number.

Investors who participate will get new bonds with a face value of less than half the previous securities, longer maturities and reduced interest rates, leading to a net present value loss of more than 70%. The new bonds do come with warrants that will provide extra income in years when Greek economic growth exceeds certain thresholds.

Non-Greek Law

The amount of the country’s bonds issued under other than Greek law totals29 billion, or 14% of the amount eligible for the swap, Frankfurt-based KfW said, citing the swap invitation memorandum. Those bonds are governed by different rules and wouldn’t be subject to the collective action clauses that were retroactively added to the Greek-law securities.

“I do fully expect to be part of the collective action clause,” Patrick Armstrong, managing partner at Armstrong Investment Managers in London, said yesterday in a Bloomberg Television interview. He said he wouldn’t voluntarily join in the swap because of the “minuscule” chance his bond maturing March 20 will be redeemed at face value.

Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit default swaps.

“I can’t see any scenario where people are forced to participate against their will and they aren’t triggered,” Armstrong said.

Participating Members

The members of the IIF creditor-investor committee who agreed to participate are Ageas, Allianz SE, Alpha Bank SA, Axa SA, La Banque Postale, Banco Bilbao Vizcaya Argentaria SA, Bank of Cyprus, BNP Paribas, CNP Assurances SA, Commerzbank AG, Credit Agricole SA, Credit Foncier, DekaBank Deutsche Girozentrale, Deutsche Bank AG, Dexia SA, Emporiki Bank of Greece SA, EFG Eurobank, Generali, Greylock, Groupama SA, HSBC Holdings Plc, ING Bank, Intesa Sanpaolo SpA, KBC Groep NV, Landesbank Baden-Wuerttemberg, Marfin Popular Bank Plc, Metlife Inc., National Bank of Greece SA, Piraeus Bank SA, Royal Bank of Scotland Group Plc, Societe Generale SA and UniCredit SpA.

In Germany, Munich Re, DZ Bank AG and KfW Group also said they will take part in the exchange. FMS Wertmanagement, the bad bank created to prevent the collapse of German property lender Hypo Real Estate Holding AG, and Erste Abwicklungsanstalt, the restructuring unit of state-owned lender WestLB AG, are both planning to take part in the exchange, according to people familiar with the matter. The two bad banks together hold as much as 9.8 billion euros in Greek debt.

Bloomberg News

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