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Large majority of investors takes up Greece's bond-swap offer

March 9, 2012 | 12:07 am

REPORTING FROM ATHENS -- Big banks and private investors holding $227 billion in Greek bonds have agreed to join in an unprecedented debt-restructuring deal that clears a key hurdle in the release of international rescue funds to Greece, diminishing fears of a devastating default.

The Greek Finance Ministry said Friday morning that 85.8% of private-sector investors had committed to swapping their bonds for new ones with less than half the value as part of a complex scheme to wipe away about a third of Greece's nearly $500 billion in debt.

It's the biggest debt-restructuring exercise ever attempted, overshadowing Argentina's $82-billion default a decade ago.

The plan, cobbled together by the Athens government, European officials and a bank lobbying group, is a key precondition for the release of a second, $170-billion bailout for Greece from its European partners and the International Monetary Fund. The bailout is designed to keep Athens solvent and, most pressingly, allow it to pay out $17 billion in bond redemptions due March 20.

Failure to have lured more than half of Greece's private bondholders to take part in the swap would have pushed the country into a chaotic default, with potentially disastrous consequences for the euro and for global markets.

Athens had hoped that more than 90% of bondholders would take up the offer, and encouraged participation with a combination of sweeteners, such as new bonds issued under British rather than Greek law, and threats that holdouts would receive nothing. Even so, Greek officials tried to dampen expectations, predicting a take-up rate of 66% to 75%.

By the time the offer closed Thursday night, however, participation seemed to have gained traction, and officials in Athens appeared buoyant.

A small number of creditors, who hold Greek bonds governed by foreign laws, are being given an additional two weeks to consider the offer.

Officials expect that, when completed, the deal will slash $141 billion from Greece's debt, with the aim of reducing the overall load to 120.5% of gross domestic product by the end of the decade.

"With the bond exchange, the economy will begin to breathe," Finance Minister Evangelos Venizelos said in a radio interview Thursday.


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