Wednesday, March 7, 2012

Greek deal will buy time but hard work lies ahead

by Richard Milne

Financial Times

March 7, 2012

It is as complex as it is big. Greece’s €206bn debt restructuring has left people drowning in a sea of figures, struggling to make sense of the deal.

Investors will get up to 24 new securities for each existing bond, a 66 per cent threshold for use of so-called “collective action clauses” but a 50 per cent quorum, and a participation rate that needs to be 95 per cent – or is it 90 or 70 per cent instead? Confused?

The simple fact is that, for all its complexity, Greece has structured this deal so that it is likely to be reasonably successful. Retroactively inserting collective action clauses, which allow the decision of a majority of bondholders to bind all investors, may seem unfair to holdouts. But it all but ensures that Greece will be able to get all its Greek law bondholders to take part, giving it about 86 per cent participation.

The question will then be to see how many international law bonds, which account for the other 14 per cent of the €206bn, are tendered in the exchange. It is unlikely enough will be tendered to reach the 95 per cent the International Monetary Fund has said is necessary to get Greece’s debt down to 120 per cent of gross domestic product by 2020.

Greece has threatened not to pay any international law holdouts at all. That would open the way for a legal battle. But it also raises the prospect that Athens could raise more money than expected by simply not paying some bondholders.


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