LONDON—Greece is unlikely to get all of its bondholders to agree willingly to a debt-restructuring plan before a Thursday deadline, but it repeated Tuesday that it is ready to force the deal through by other means.
Greece stepped up pressure on its creditors Tuesday, saying it won't have money available to pay bondholders who resist.
Creditors have until Thursday evening to decide whether they will accept the deal, which replaces existing bonds with a package of new securities with less than half of the face value.
But what happens Thursday is part of a carefully choreographed dance designed to ensure the deal is executed.
The country has made plain that the bulk of its bondholders—those who have €177 billion ($234 billion) of debt issued under Greek legislation—almost certainly will be compelled to submit to the deal whether or not they agree, thanks to changes in Greek law introduced last month.
The verbal jousting on Tuesday appeared primarily to be aimed at the small minority of bondholders whose securities were issued under non-Greek law, where Greece's reach is more limited.
They have €21 billion in debt, counting a small quantity of bonds issued by state-owned companies and guaranteed by Greece.
But it is becoming clearer that Greece is highly likely to impose the exchange on all holders of its Greek-law debt, and play hardball with any foreign-law bondholders who resist.
In pushing the plan through, Greece is dealing with two categories of bondholders: those who hold debt issued under Greek law, about 90% of the €206 billion total, and those who hold debt issued under non-Greek law, totaling about 10%.
Bondholders must say not only whether they will accept the swap, but also whether they assent to the swap being forced on everyone.
Greece has a strong hand with the Greek-law bondholders, since last month's legal changes enable Greece to force the exchange on all of them with the consent of two-thirds who vote.
People familiar with the matter say Greece is confident it can get to around 75%.
A dozen major banks and financial institutions said this week they will participate in the exchange, and the finance ministry said Tuesday all six major Greek banks would do the swap.
A government official said the majority of Greek pension funds would as well.Greece says it won't use force if it gets 90% of bondholders to agree to the exchange.
But that threshold appears out of reach. For one thing, Greece defines it as 90% of all debt subject to the restructuring—not just the Greek-law bonds.
For another, creditors who have insured their holdings with credit-default swaps—contracts that pay off in case of default—need Greece to force the exchange in order to trigger the terms of the contract.
Thus, bondholders who also hold credit-default swaps are likely—in a strange bit of legal gymnastics—to hold out from the exchange, but at the same time vote to give Greece the authority to drive them into it.
"We can't risk getting exchanged and CDS not triggering," said one creditor who holds both Greek bonds and credit-default swaps, and is voting that way.
More broadly, say many analysts, the Greek deal isn't a bad offer.
The country is deep in a punishing recession, and the state has no money and is relying on rescue aid from other euro-zone countries and the International Monetary Fund to pay its bills. The deal on the table gives creditors at least some cash, thanks to additional euro-zone funds.
"Nobody really has an interest in seeing this deal collapse," says Charles Blitzer, a former IMF official who worked on several sovereign restructurings. "No matter who you are, you are worse off if the deal fails."
Still, some bondholders are likely to resist.
The foreign-law bonds typically require a two-thirds or three-quarters majority of each issue—not of the whole total—to impose changes involuntarily.
That means an investor or a group of investors with a large-enough position in one of the bonds could block a forced exchange. Law firm Bingham McCutchen said Tuesday it was representing a group of investors in a Swiss-franc Greek bond that plans to hold out.
In effect, that is a bet that Greece—or, in fact, Germany and the other euro-zone rescuers—will be willing to pay off a small number of holdouts just to end the nuisance.
German rhetoric suggests that is unlikely, but a significant part of the euro zone's aid money to Greece over the past year and a half has gone to pay bondholders.
If Greece refuses to pay, holdout bondholders could try their luck in court. Several features of Greece's exchange plan appear designed to serve as roadblocks to that path as well.
First, the new bonds delivered in the exchange won't be considered in default if Greece stops making payments on old bonds.
Second, the new bonds also are settled and paid in Greece: That makes it harder for a foreign court to order those funds seized and redirected to pay the old bondholders, if they win their case.
wsj.com
Greece stepped up pressure on its creditors Tuesday, saying it won't have money available to pay bondholders who resist.
Creditors have until Thursday evening to decide whether they will accept the deal, which replaces existing bonds with a package of new securities with less than half of the face value.
But what happens Thursday is part of a carefully choreographed dance designed to ensure the deal is executed.
The country has made plain that the bulk of its bondholders—those who have €177 billion ($234 billion) of debt issued under Greek legislation—almost certainly will be compelled to submit to the deal whether or not they agree, thanks to changes in Greek law introduced last month.
The verbal jousting on Tuesday appeared primarily to be aimed at the small minority of bondholders whose securities were issued under non-Greek law, where Greece's reach is more limited.
They have €21 billion in debt, counting a small quantity of bonds issued by state-owned companies and guaranteed by Greece.
But it is becoming clearer that Greece is highly likely to impose the exchange on all holders of its Greek-law debt, and play hardball with any foreign-law bondholders who resist.
In pushing the plan through, Greece is dealing with two categories of bondholders: those who hold debt issued under Greek law, about 90% of the €206 billion total, and those who hold debt issued under non-Greek law, totaling about 10%.
Bondholders must say not only whether they will accept the swap, but also whether they assent to the swap being forced on everyone.
Greece has a strong hand with the Greek-law bondholders, since last month's legal changes enable Greece to force the exchange on all of them with the consent of two-thirds who vote.
People familiar with the matter say Greece is confident it can get to around 75%.
A dozen major banks and financial institutions said this week they will participate in the exchange, and the finance ministry said Tuesday all six major Greek banks would do the swap.
A government official said the majority of Greek pension funds would as well.Greece says it won't use force if it gets 90% of bondholders to agree to the exchange.
But that threshold appears out of reach. For one thing, Greece defines it as 90% of all debt subject to the restructuring—not just the Greek-law bonds.
For another, creditors who have insured their holdings with credit-default swaps—contracts that pay off in case of default—need Greece to force the exchange in order to trigger the terms of the contract.
Thus, bondholders who also hold credit-default swaps are likely—in a strange bit of legal gymnastics—to hold out from the exchange, but at the same time vote to give Greece the authority to drive them into it.
"We can't risk getting exchanged and CDS not triggering," said one creditor who holds both Greek bonds and credit-default swaps, and is voting that way.
More broadly, say many analysts, the Greek deal isn't a bad offer.
The country is deep in a punishing recession, and the state has no money and is relying on rescue aid from other euro-zone countries and the International Monetary Fund to pay its bills. The deal on the table gives creditors at least some cash, thanks to additional euro-zone funds.
"Nobody really has an interest in seeing this deal collapse," says Charles Blitzer, a former IMF official who worked on several sovereign restructurings. "No matter who you are, you are worse off if the deal fails."
Still, some bondholders are likely to resist.
The foreign-law bonds typically require a two-thirds or three-quarters majority of each issue—not of the whole total—to impose changes involuntarily.
That means an investor or a group of investors with a large-enough position in one of the bonds could block a forced exchange. Law firm Bingham McCutchen said Tuesday it was representing a group of investors in a Swiss-franc Greek bond that plans to hold out.
In effect, that is a bet that Greece—or, in fact, Germany and the other euro-zone rescuers—will be willing to pay off a small number of holdouts just to end the nuisance.
German rhetoric suggests that is unlikely, but a significant part of the euro zone's aid money to Greece over the past year and a half has gone to pay bondholders.
If Greece refuses to pay, holdout bondholders could try their luck in court. Several features of Greece's exchange plan appear designed to serve as roadblocks to that path as well.
First, the new bonds delivered in the exchange won't be considered in default if Greece stops making payments on old bonds.
Second, the new bonds also are settled and paid in Greece: That makes it harder for a foreign court to order those funds seized and redirected to pay the old bondholders, if they win their case.
wsj.com
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