Bloomberg News

Greek Bond Swap Has Backing From 40 to 45 Firms, IIF Says

November 01, 2011

(For more on the European debt crisis, see EXT4.)

Oct. 31 (Bloomberg) -- Greece’s new proposed bond swap has won initial backing from 40 to 45 firms holding more than 80 percent of eligible Greek debt, Institute of International Finance Managing Director Charles Dallara said today.

The firms took part in consultations while IIF negotiated with European leaders on the exchange, which will be voluntary, Dallara told reporters in Washington. The accord was reached last week after overnight talks on how to provide more aid for Greece and increase the European Union’s crisis-fighting resources.

The banks will be working with EU and Greek officials on how to move forward with the debt swap, part of Europe’s broader effort to limit the fallout from the continent’s sovereign debt crisis and its effects on the global economy. European leaders agreed last week to boost the European Financial Stability Facility’s firepower to one trillion euros ($1.4 trillion), set aside 100 billion euros for Greece and provide 30 billion euros in collateral for the debt swap.

The deal was agreed to “only after extensive consultations, virtually continuous consultations” with the heads of the largest investors in Greek debt, said Dallara, whose Washington-based trade group represents more than 450 financial institutions.

Financial firms involved in the talks own “something north of 80 percent of the identified holdings of Greek government bonds,” he said. “It’s a substantial proportion.”

The firms that have been consulting with IIF support the outline of the deal as proposed so far, Hung Tran, IIF’s deputy managing director, said in a telephone interview. They won’t commit to participating until all the terms of the deal are finalized, he said.

One Option

Investors will have only one option for exchanging their bonds under the agreement, compared with a July plan that offered multiple choices.

Private investors who take part will exchange their existing Greek bonds for new ones at 50 percent of face value. At the same time, the risk associated with the new bonds will be shared between the Greek government and a AAA-rated issuer, such as the revamped EFSF.

A participating investor could, for example, exchange $100 in old Greek bonds for $50 in new Greek bonds, comprised of $15 backed by AAA collateral and $35 backed by the Greek state, European Union officials told reporters in Brussels last week.

Dallara said participation rates in the debt exchange would be “very, very high.” The next steps will be to work out details on the maturity of the new bonds, the coupon they will pay and how collateralization will work.

“We anticipate to move forward quite promptly here,” Dallara said. He said the deal is “unique” and is not an exercise that could be repeated.

IIF estimates that the accord would affect a pool of about 206 billion euros of debt, Dallara said. “We are aiming to take as much as half of that and wipe it out,” he said.

--With assistance from Aaron Kirchfeld in Frankfurt. Editors: Scott Lanman, Kevin Costelloe

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; James Hertling at jhertling@bloomberg.net


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