By Marcus Bensasson, Natalie Weeks and Maria Petrakis, Bloomberg
Greece and its private creditors said early today they had made progress during talks in Athens on a debt-swap accord needed to lower the country’s borrowings and clear the way for a second round of international aid.
“The elements of an unprecedented voluntary private-sector involvement are coming into place,” according to an e-mailed statement from Charles Dallara, managing director of the Institute of International Finance, a Washington-based lobby group representing creditors negotiating with the government.
European officials and the nation’s private bondholders agreed in October to implement a 50 percent cut in the face value of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020. An accord with bondholders is key to a second financing package for the cash- strapped country, which faces a 14.5 billion-euro ($18.7 billion) bond payment on March 20.
“Now is the time to act decisively and seize the opportunity to finalize this historic deal and contribute to the economic stability of Greece, the euro area and the world economy,” Dallara said in a joint statement with Jean Lemierre, a special adviser to the chairman of BNP Paribas (BNP) SA.
Greek Finance Minister Evangelos Venizelos told reporters in Athens talks will continue later today, after a 4 1/2 hour meeting with the IIF officials and Prime Minister Lucas Papademos broke up about 1 a.m. in Athens. The meeting reconvened late yesterday after Greek officials broke to consult with European Union representatives.
90% Participation
“There’s been significant progress,” Hans Humes, president of Greylock Capital Management and a member of the creditor committee, said in a Bloomberg Television interview yesterday. “There’s broad agreement about the coupons and structural elements.”
The parties are near an initial agreement under which old bonds would be swapped for new 30-year securities carrying a coupon that would begin at 3.1 percent, reach 3.9 percent and go as high as 4.75 percent, Athens-based newspaper Proto Thema reported on its website yesterday, without saying where it got the information.
The two sides, which broke off negotiations on Jan. 13 before resuming them three days ago, have struggled to reach an accord on the coupon and maturity of the new bonds, which would determine losses for investors.
Humes said he’s “cautiously optimistic” the talks will lead to an accord.
Weekend Deal ‘Optimistic’
“If the IIF shake hands with the other side of the table, we will have a 90 percent or higher acceptance rate,” he estimated. He declined to provide details of the discussions.
Marathon Asset Management LP Chief Executive Officer Bruce Richards estimated in a Jan. 17 interview that private creditors were likely to get cash and securities with a market value of about 32 cents per euro of government bonds in the debt accord.
Like Greylock, Marathon, which has $10 billion under management, is on the committee of 32 private creditors formed in November to negotiate with Greece, the International Monetary Fund and the EU. The firms aren’t members of the smaller steering committee directly involved in negotiations.
Questions remain how the two sides can craft a voluntary deal that will provide the debt relief the Greek government requires while attracting enough participation from bondholders. The government has indicated it may submit legislation that would compel full participation from private creditors, a move that would undercut the voluntary nature of any deal and could trigger credit-default swap insurance contracts.
‘Pretty Much Set’
“The financial terms are pretty much set at this point,” Sassan Ghahramani, CEO of SGH Macro Advisors, told Lisa Murphy on Bloomberg Television’s ‘Street Smart’. “The whole holdup now are on legal issues, and I suspect there’s some discussion on this whole collective action clause issue.”
Venizelos said on Jan. 19 that for the final deal to lead to a sustainable level of debt for the country there must be a 100 percent participation rate.
Hedge funds holding Greek bonds may resist the deal, seeking greater profit by getting paid in full, either by the Greek government or by triggering payouts from credit-default swaps. Winning support from banks seeking to limit their losses may be easier than including hedge funds and other speculators who bought securities at distressed levels.
Vega Asset Management LLC resigned from the committee of Greek creditors negotiating the debt swap last month because the Madrid-based hedge fund refused to accept a net present value loss exceeding 50 percent, according to a Dec. 7 e-mail sent to other panel members, which was obtained by Bloomberg News.
Troika Mission
Greek officials also met with the so-called troika mission, which is comprised of European Commission, European Central Bank and IMF representatives, on the new 130 billion-euro financing accord for the country.
The creditors’ steering committee negotiating the debt swap includes representatives from banks and insurers with the largest holdings of Greek government bonds, including National Bank of Greece SA (ETE), BNP Paribas SA, Commerzbank AG (CBK), Deutsche Bank AG (DBK), Intesa Sanpaolo SpA (ISP), ING Groep NV (INGA), Allianz SE (ALV) and Axa SA. (CS)
Financial firms on the IIF’s private-creditor investor committee, a larger group of 32 members that includes the smaller steering committee, hold more than 47 billion euros in Greek sovereign debt, according to data compiled by Bloomberg from company reports.
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