Analysis: Greek default may be gift to other euro strugglers

Wed Mar 7, 2012 3:34pm EST
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By Mike Dolan

LONDON (Reuters) - Greece's tortuous debt restructuring and threat of retroactive laws to compel reluctant creditors heaps regulatory risk onto investors but may make voluntary sovereign debt revamps more attractive and likely for other cash-strapped euro sovereigns and their creditors.

Thursday could mark a climax of the Greek debt workout with private creditors due to respond to an offer that would see them effectively write off more than 70 percent of the face value of their bonds in return for new debt with a series of sweeteners.

With Greek government bonds currently trading at less than 20 cents in the euro and the risk of a total wipeout if Greece decided to unilaterally refuse all payments, a majority will likely go for it. Legally-binding majorities are another matter.

Athens said this week it aims for 90 percent acceptance but if the takeup is at least 75 percent then it would consider triggering so-called "collective action clauses" retroactively inserted into the bonds issued under Greek law -- about 85 percent of the 200 billion euros being restructured.

Those clauses in practice force all affected creditors to comply.

But it's this distinction between debt issued under domestic laws and that sold under internationally-accepted English law that some say has consequences for other troubled euro nations eyeing Greece's so-called Private Sector Involvement, or PSI.


In essence, English-law Greek bonds, as is the case for many emerging market sovereigns, trade as if they were senior to local-law debt -- at almost twice the price in fact right now. That's because the terms of foreign-law bonds cannot be altered by an Athens parliament, and agreement for debt swaps is needed bond-by-bond, unlike local laws that aggregate majorities across all debtors and make blocking minorities more difficult to muster.   Continued...