Greek bond exchange under Greek law completed

Updated: 2012-03-13 01:53


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ATHENS - Greece said on Monday it had completed a bond swap program worth over 177 billion euros (about 232 billion US dollars), as part of efforts to avoid a disorderly default.

The swap program got the voluntary support of 85.8 percent of private investors who are holding 177 billion euros (232 billion dollars) in bonds issued under the Greek law, even though the deal would see them lose more than 70 percent on their holdings of the Greek debt.

Under the Private Sector Involvement (PSI) scheme supported by European Union and International Monetary Fund lenders, the old bonds would be exchanged with new ones with lower value, lower interest rates and longer maturities. It could slash Athens' 350-billion-euro debt pile by 105 billion euros.

But the activation of collective action clauses (CACs) by the Greek government on Friday to force losses on reluctant bondholders in order to secure a near 100 percent participation triggered new downgrades of the Greek credit ratings by international agencies to "restricted default."

In the meantime, the International Association of Swaps and Derivatives (ISDA) also declared a "credit event," paving the way for the payout of credit default swap contracts (CDSs).

Greek and foreign officials have repeatedly stressed that such "technical defaults" were not important for the real economy, and that stability would be restored with the completion of the overall debt swap deal.

By March 23, holders of bonds written under foreign law are invited to take part in the PSI scheme and the debt swap is due to be completed in early April.

Securing the writedown was one of the most important preconditions before funds from a 130-billion-euro international bailout, the second of its kind for Athens since May 2010, could be released. Without the bailout, Greece would face defaulting on its debts in less than two weeks.

In return for the bailout, Athens has pledged to implement an ambitious austerity and reform program to slash deficits and boost development with international backing.

Horst Reichenbach, head of a special EU Commission Task Force for Greece, returned to Athens on Monday for a new string of talks with Greek officials on the development projects to be completed in the country in coming months and years, and is expected to present a progress report on Thursday.