BREAKINGVIEWS: Greece takes easy way out with bolshy bondholders - RTRS
15-May-2012 23:35
(The author is a Reuters Breakingviews columnist. The opinions expressed are
his own)
By Neil Unmack
LONDON, May 15 (Reuters Breakingviews) - Athens is repaying 430 million euros of bonds that dodged its debt swap. The move may have prevented further market panic. But seemingly diverting bailout funds to speculators will inflame domestic sensitivities.
The bonds which matured on May 15 were Greek debt securities issued under foreign law. That meant they weren’t bound by the same “collective action clauses” that forced losses on Greek-law bonds when a threshold of investors agreed to take a 75 percent loss in February's restructuring. Investors holding about 6 billion euros of these securities dodged the bullet.
These legally protected bonds presented Greece with a dilemma. Athens had already stated that its bailout did not provide funds to give bondholders any more than the amount offered under the restructuring. It would have to reach a separate deal, or default. Athens’ euro zone lenders appeared to be ready for the latter scenario; the restructuring - which was more coercive than voluntary - had already broken the taboo of default.
But Greece blinked. The bonds will be repaid by a hitherto unknown reserve in Greece’s bailout for repaying holdouts “in exceptional cases”, reported the Financial Times. The circumstances are genuinely exceptional. Athens has no stable government and its membership of the euro is in doubt. Default could have sparked chaos. No government takes the decision not to pay its debts lightly - least of all an interim administration.
Still, the payout is extremely awkward. It adds insult to injury for the creditors who suffered losses in the restructuring. It will anger Greeks who may feel they are undergoing austerity to repay speculators. Moreover, the government could have deferred the decision until after the next election, given the bonds’ grace period, thought to be 30 days.
It’s tempting to see this as a triumph of smart investing and English securities law. Bondholders who read the situation correctly have been rewarded. The bonds were trading at 70 cents on the euro in April. But they were lucky too. The instability caused by Greece’s inconclusive election has lessened Greece’s and Europe’s resolve. A new government may take a harder line, even if Greece stays in the euro. The other holdouts may not get such a sweet deal.
CONTEXT NEWS
(Editing by Chris Hughes and David Evans)
((neil.unmack@thomsonreuters.com))
Keywords: BREAKINGVIEWS GREECE/
By Neil Unmack
LONDON, May 15 (Reuters Breakingviews) - Athens is repaying 430 million euros of bonds that dodged its debt swap. The move may have prevented further market panic. But seemingly diverting bailout funds to speculators will inflame domestic sensitivities.
The bonds which matured on May 15 were Greek debt securities issued under foreign law. That meant they weren’t bound by the same “collective action clauses” that forced losses on Greek-law bonds when a threshold of investors agreed to take a 75 percent loss in February's restructuring. Investors holding about 6 billion euros of these securities dodged the bullet.
These legally protected bonds presented Greece with a dilemma. Athens had already stated that its bailout did not provide funds to give bondholders any more than the amount offered under the restructuring. It would have to reach a separate deal, or default. Athens’ euro zone lenders appeared to be ready for the latter scenario; the restructuring - which was more coercive than voluntary - had already broken the taboo of default.
But Greece blinked. The bonds will be repaid by a hitherto unknown reserve in Greece’s bailout for repaying holdouts “in exceptional cases”, reported the Financial Times. The circumstances are genuinely exceptional. Athens has no stable government and its membership of the euro is in doubt. Default could have sparked chaos. No government takes the decision not to pay its debts lightly - least of all an interim administration.
Still, the payout is extremely awkward. It adds insult to injury for the creditors who suffered losses in the restructuring. It will anger Greeks who may feel they are undergoing austerity to repay speculators. Moreover, the government could have deferred the decision until after the next election, given the bonds’ grace period, thought to be 30 days.
It’s tempting to see this as a triumph of smart investing and English securities law. Bondholders who read the situation correctly have been rewarded. The bonds were trading at 70 cents on the euro in April. But they were lucky too. The instability caused by Greece’s inconclusive election has lessened Greece’s and Europe’s resolve. A new government may take a harder line, even if Greece stays in the euro. The other holdouts may not get such a sweet deal.
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CONTEXT NEWS
- Greece said it would repay a 430 million euro bond maturing on May 15, citing current market conditions. The bonds were the first to reach maturity of about 6 billion euros of securities that avoided the losses forced on other creditors in the Greece’s debt restructuring, dubbed private sector involvement (PSI).
- Investors holding 199 billion euros of bonds took a roughly 75 percent loss on their holdings in the PSI after Greece used collective action clauses to force minority creditors to accept the restructuring. The holdouts were not affected by the same collective action clauses because they held bonds issued under foreign law.
- Reuters: In about-face, Greece to pay May 15 bond swap holdouts (nL5E8GF4EX)
- For previous columns by the author, Reuters customers can click on UNMACK/
(Editing by Chris Hughes and David Evans)
((neil.unmack@thomsonreuters.com))
Keywords: BREAKINGVIEWS GREECE/
nL4E8GF7EQ/
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