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Greek Bond Swap Deal Rests on Knife Edge
Financial Times | March 05, 2012 | 02:41 AM EST

Greece faces a decisive week in its struggle to avert a sovereign default, with a planned debt swap poised on a knife-edge amid doubts over the level of participation by private bondholders.

The government’s tender offer has got off to a slow start, with its advisers trying to round up non-institutional bondholders and even Greek investors showing reluctance to sign up quickly, according to insiders.

Private holders of 206 billion euros in Greek bonds have until Thursday evening to decide whether to take part in a swap where they would trade bonds for a package of bonds and cash that would knock about 100 billion euros off Athens’ debts.

Greece must get 75 percent of holders to participate to avoid forcing the deal on holdouts through so-called “collective action clauses” which were inserted retroactively into Greek bonds by the government last week. If less than 66 percent participate, even the CACs would become invalid, scuppering the entire deal.

People close to some bondholders warned other investors to take seriously threats by policymakers that if the deal fails Greece will default on its debt. “Some investors seem to think they will be rescued. That just isn’t the case,” one said.

People involved in the deal denied that there was any nervousness about the outcome but nobody was willing to guess how high the participation rate would be.

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