March 3, 2012 / 7:33 PM / 6 years ago

IIF's Dallara says confident Greek debt swap will succeed

ATHENS (Reuters) - The chief negotiator for the body representing private sector holders of Greek bonds expressed confidence on Saturday that a bond swap deal which is a key part of Greece’s bailout program would be completed successfully next week.

Head of the Institute of International Finance (IIF) Charles Dallara arrives for a meeting with Greek Prime Minister Lucas Papademos in Athens January 26, 2012. REUTERS/Yiorgos Karahalis

“We can sense in our discussions with investors that momentum is building,” Charles Dallara, managing director of the International Institute of Finance (IIF), told Greece’s Antenna television in an interview.

“I‘m quite optimistic that the participation levels will be quite high,” he said, but he declined to predict a figure.

Bondholders have until March 8 to sign up to the agreement under which they will exchange their existing Greek government bonds for new paper in a swap deal that will see the nominal value of their holdings cut by 53.5 percent.

Failure to secure a deal with private sector creditors would threaten the 130-billion-euro bailout package agreed last month with the European Central Bank, the European Union and the International Monetary Fund.

Greece has said it would not be obliged to go through with the arrangement unless it gets 90 percent participation. If participation is below 90 percent but above 75 percent, it would consult with its public sector creditors.

Assuming a sufficient number of investors accept the deal, European leaders should give final approval to the bailout in a teleconference on March 9.

Dallara said that any deal contained at least some risk of failure but he said the danger facing the bond swap deal, reached only after months of tortuous negotiations, was slight.

He also played down concerns that the debt restructuring could trigger credit default swap contracts that some investors took out to protect themselves against the risk of default.

The International Swaps and Derivatives Association (ISDA), the body which rules on whether a so-called “credit event” that would trigger the CDS has occurred, decided on Thursday that Greece had not breached the terms of the insurance contracts.

Under the deal, private sector bondholders will be forced to accept a loss while Greece’s public sector creditors will not and despite Thursday’s ruling, investors could seek a further ruling from the ISDA that could trigger a CDS payout.

However, Dallara said he did not believe the CDS issue would derail the bond swap.

“Of course, any individual investor may well ask for another ruling at some point. But this again does not trouble me and does not present a hurdle,” he said.

Reporting By Angeliki Koutantou and James Mackenzie

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