Greece Completes its Debt Swap

Athens, Greece

Yesterday Greece completed their final hurdle to secure a bond swap and avoid a disorderly default. The heavily indebted country will now erase 100 billion euros of its debt and fulfill the imposed requirements from euro zone leaders to receive a second financial bailout of 130 billion euros ($172 billion) which  includes an initial payment of 14.5 billion due on March 20.

 Greece’s private creditors have been nervously holding 206 billion euros of Greek bonds.

The new Greek debt swap deal, the largest sovereign debt swap deal in history, had a voluntary participation rate of 85.8% under Greek Law bonds and 69% with non Greek bonds.

That was lower than the 90% voluntary participation rate needed for the country to avoid invoking the collective action clause and force their remaining bond holders to accept the new bond swap deal with its 53.5% write-down of face value. 

Because the 90% voluntary participation rate was not obtained, Greece invoked the collective action clause in bond agreements. The participation rate after the collective action clause (CAC’s) jumped to 95.7%.

The Greek ministry said a total of 152 billion euros worth of bonds issued under Greek law or 85.8% of the overall outstanding amount, were tendered under the terms of the debt plan.

Greek bond holders will swap their old bonds for new ones with a lower face value, lower interest rates, and longer maturities.

The International Swaps and Derivatives Association said the determinations committee will meet at 1 p.m. London time to consider a possible credit event for Greece, an event that would trigger the credit default swaps.

The new debt swap deal gives Greece more time to show euro zone members that they are truly committed to implementing reform through austerity measures, job cuts, pension reductions, and tax increase.

Greece will need to generate growth in their economy to pay down their large sovereign debts and reach the 120.5 % debt to GDP target by 2020. Greece’s current debt to GDP level is 165%.

Bloomberg Economist Linda Yueh just reported that Greece’s GDP in 4Q declined 7.5% from last year. Greece has to long road ahead to generate enough growth to pay down their long term debts.

 Greek Finance Minister Evangelos Venizelos said in a statement: “I wish to express my appreciation to all of our creditors who have supported our ambitious program of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavour.”

Now that Greece’s bond holders have been asked to take a 53.5% write-down, there are lingering concerns about whether other private creditors holding long term sovereign debt in other indebted countries like Spain or Portugal will want to continue holding their bonds when the possibility of a future write-down may be right around the corner. 

Yesterday a new precedence was established with Greece’s debt swap and 53.5 % write down of private creditor debt. Some investors today are wondering about the possibility of more private creditor write-downs and debt swaps in the euro zone.

U.S. Jobs Report

The unemployment rate is expected to remain at 8.3%.

Non- farm Payroll: Economists forecast 210,000 jobs were created in February compared to 243,0000 new jobs in January.




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