March 6, 2012
Greece has threatened to default on any of its bondholders who do not take part in a €206bn debt restructuring that officials believe is key to returning Athens to solvency, a move that turns up the heat on potential holdouts ahead of a deadline on Thursday.
The Greek public debt management agency said in a statement Athens “does not contemplate the availability of funds” to pay private investors who hold on to their bonds once the restructuring occurs. The transaction is projected to wipe €100bn from Greece’s debt pile, but 95 per cent of bondholders must participate for that target to be reached.
“There is no commitment not to pay, but there is a threat,” said Charles Blitzer, a former senior IMF official. “If you don’t maximise participation, you’re asking for more stress in the programme or more [bailout] money from the official sector.”
The threat is particularly aimed at 14 per cent of investors who own Greek bonds issued under international law. The remaining 86 per cent, who own €177bn in Greek-law bonds, were also warned that Athens would use new legal provisions, called collective action clauses, to force the deal on holdouts. That would almost certainly trigger credit default swaps, a form of insurance that could prove more lucrative for some holdouts but could lead to renewed market uncertainty.
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