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DSW Says Greece Must Treat Bondholders Equally or Face Default

February 28, 2012

German investor protection group DSW said Greece needs to provide clarity on the treatment of individual investors in its debt swap or risk a holdout that may trigger the default European leaders are trying to prevent.

Greece should treat all small investors across the European Union equally, Dusseldorf-based DSW said in an e-mailed statement today. So far, DSW is only aware of plans by the Greek government to compensate Greek retail investors for their losses, it said.

“Although many private investors affected have already received post from their banks on a swap offer, the legal situation is still not clarified,” Marc Tuengler, DSW’s managing director, said in the statement. “One possibility would be if retail investors were to be awarded the purchase price of Greek bonds that they hold.”

A voluntary restructuring of Greece’s debt that includes bondholders taking a 53.5 percent cut in the value of their investments to lower the country’s debt burden is part of a 130 billion-euro ($175 billion) bailout aimed at preventing a sovereign default. If a solution isn’t reached swiftly on the compensation of retail investors, such a credit event may result, DSW said. Greece is proceeding with the debt exchange in the coming weeks to avoid having to fully redeem 14.5 billion euros of bonds due on March 20.

“There will almost certainly be lawsuits from investors who rejected the debt swap if the bonds due on March 20 are not serviced,” Tuengler said. “That could well lead to an official default.”

Delay Decision

Many of DSW’s members with Greek debt holdings do not plan to take part in the debt swap, or have delayed their decision until legal uncertainties have been clarified, Juergen Kurz, a spokesman for DSW, said by telephone today.

Investors who don’t participate in the exchange of old bonds for new ones don’t lose anything if Greece manages to avoid a default, unlike investors who agree to a cut in the value of their Greek sovereign debt, Kurz said. If Greece cancels the payment on its debt, holders of old bonds will take part in negotiations with the Greek government, while investors with the new bonds won’t be able to do so, he said.

Greek Finance Minister Evangelos Venizelos said in comments on Feb. 22 that Greek and non-Greek retail investors should be treated in the same way.

The International Swaps and Derivatives Association’s determinations committee was asked whether a so-called restructuring credit event was caused by the publication yesterday of legislation that the Greek parliament passed as part of its agreement to exchange bonds for new securities, the trade group said on its website.

The restructuring uses collective action clauses to discourage holdouts. The use of such clauses would trigger swap contracts, according to ISDA rules.

Greece negotiated the biggest debt restructuring in history as it seeks to reduce national debt to about 120 percent of gross domestic product by 2020, from 160 percent last year. The debt swap will slice 100 billion euros off more than 200 billion euros of privately held debt if all investors take part.

To contact the reporter on this story: Niklas Magnusson in Hamburg at

To contact the editor responsible for this story: Angela Cullen at

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