Greece secures high participation in bond swap

By Elena Becatoros

Associated Press

Published: Friday, March 9 2012 2:30 a.m. MST

People wait to receive money from an ATM at an Alpha Bank branch in Athens, on Thursday, March 8, 2012. Greece's race to slice euro107 billion ($140 billion) off its national debt entered the final stretch Thursday, with markets confident enough private investors will decide to accept a deal to write down the value of their Greek bond holdings.

Thanassis Stavrakis, Associated Press

ATHENS, Greece — Greece took a critical step toward staving off an imminent bankruptcy after securing the support of the vast majority of its bondholders in a crucial bond swap that should pave the way for its second massive international bailout.

Following weeks of intense discussions, Greece's Finance Ministry said Friday that 85.8 percent of private investors holding its Greek-law bonds had signed up to the deal, and that it aimed to use legislation forcing the holdouts to participate. It extended the deadline for holders of bonds that are governed by foreign laws, of whom 69 percent have so far signed up, until March 23.

The deal aimed to slash the country's national debt by €107 billion ($140 billion), with private bond holders accepting a face-value loss of 53.5 percent in exchange for new bonds with more favorable repayment terms. A total of €206 billion ($273 billion) out of Greece's €368 billion ($487 billion) national debt is in private hands.

If the swap had failed, Greece would have faced defaulting on its debts in two weeks, when it faced a large bond redemption. Getting the bond swap through is a key condition for Greece to get its hands on a €130 billion ($172 billion) package of rescue loans from other eurozone countries and the International Monetary Fund.

"After quite a rollercoaster ride, it looks like Greece has finally done it ... allowing Europe to avoid what could have been a disorderly default in which the costs do not bear thinking about," said Simon Furlong, a trader at Spreadex.

Markets generally suffered a bout of profit-taking following Thursday's euphoria when hopes of a successful bond swap swelled. An expectation that insurance policies on Greek bonds will be paid out tempered the mood on Friday too.

The Stoxx 50 of leading European shares was up 0.1 percent, but the main stock index in Athens fell 0.7 percent. The euro retreated slightly from recent highs to trade 0.4 percent lower at $1.3215.

Government spokesman Pantelis Kapsis told The Associated Press the participation level exceeded expectations.

The deal, he said, represents "a historic agreement for Greece, which allows us relief from a very significant part of our debt, and I believe it opens the way for completion of the loan agreement and for us to turn a new page."

In total, the Finance Ministry said holders of €172 billion ($228 billion) in Greek- and foreign-law bonds had agreed to sign up to the deal — translating into an 83.49 percent overall participation level. By triggering the legislation known as collective action clauses to force holdouts to join, Greece will secure a participation level of 95.7 percent, or €197 billion ($261 billion).

"The very strong and positive result provides a major opportunity now for Greece to move ahead with its economic reform program, while strengthening the euro area's ability to create an economic environment of stability and growth," said Josef Ackermann, chairman of the International Institute of Finance, which had negotiated in the deal on behalf or large private creditors.

The bond swap is a radical attempt to pull Greece out of its debt spiral and put its shrinking economy back on the path to recovery. The hope is that by slashing the overall debt, the country, which is in a fifth year of recession, can gradually return to growth and eventually repay the remaining money it owes.

A debt crisis sparked by years of overspending and waste has left Greece relying on funds from international bailout loans since May 2010. The austerity measures including salary and pension cuts and tax hikes imposed in return have led to record unemployment and a deep recession, but its politicians came under criticism for dragging their heels in implementing reforms.

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