On Tuesday Greece warned their private creditors that the country would default on payments to any bond investor who doesn’t agree to participate in the Greek debt swap restructuring program that is crucial for Greece to fulfill a March 20th payment on their debt and avoid a default.
Greece’s private bond holders are holding 206 billion euros of Greek bonds and have until Thursday evening to determine whether they will engage in the proposed Greek debt swap deal that is essential to help Greece manage its finances and make an initial debt payment of 14 billion ($19 billion) euros by March 20th with new euro rescue fund money that will only be disbursed after Greece’s private creditors agree to accept the new terms of write down on their Greek bond before they are swapped for newer Greek bonds.
Greece’s private creditors will forfeit 53.5 percent of the bonds face value of their debt, closer to 75 percent in real terms, in exchange for new Greek bonds with longer repayment deadlines and lower interest rates.
Greece’s upcoming 14 billion euro debt payment on March 20th is the first payment of a 13o billion euro ($171billion) bailout rescue fund.
Following a meeting yesterday in Frankfurt, Germany a statement was issued from Greece’s Public Debt Management Agency cautioning bond holders that no money would become available to continue bond payments to any investor who doesn’t agree to the bond swap deal.
“Greece’s economic programme does not contemplate the availability of funds to make payments to private sector creditors that decline to participate,” the agency stated.
Greece needs to secure at least 90% participation for their bond exchange to proceed.
If less than 90% of bond holders participate in the voluntary bond swap, Greece has the option of invoking a clause called the collective action clause to force the remaining bond holders to accept the new bond swap deal.
But for that to occur, at least half of the bond holders must participate in a vote with at least two thirds voting in favor of the new bond-swap terms which includes the 53.5% bond write down.
Yesterday, twelve financial institutions representing the Steering Committee of Greek Creditors and holding a sizeable portion of the Greek debt have already agreed to accept the voluntary 53.5% cut. These institutions hold Greek bonds with a total nominal value of 40 billion euros.
Later on Monday it was announced that nine more major Greek bondholders, all on the steering committee, said they would support the bond swap deal. Greek banks and other steering group members hold about 30 percent of the 206 billion euros of bonds that are in circulation. Bloomberg reported that Socgen and Unicredit are the latest EU banks agreeing to the terms of the new bond swap deal.
Jean Leonetti, French European Affairs Minister told Bloomberg, “The promises made by private creditors will be fulfilled because its in the general interest. It’s in the primary interest of private creditors as well as international stability.” Leonetti continued, ” All private creditors know its better to lose a little now to win a lot after rather than to lose later and win nothing.”