Greek Debt-Swap Talks Set for Second Day in Push for Accord

Greece’s government heads into a second day of talks with private creditors in a push to reach an accord that would slash the nation’s debt and avert a collapse of the economy.

Discussions with officials from the Institute of International Finance, which represents bondholders, will continue today, Greek Finance Minister Evangelos Venizelos told lawmakers in Parliament, in comments televised live on state-run Vouli TV. The plan was confirmed by Frank Vogl, an IIF spokesman, in an e-mail sent after a “lengthy meeting” yesterday.

“A very critical meeting at the prime minister’s office just finished,” Venizelos said yesterday. “Talks between the Greek government and the IIF resumed and they will continue tomorrow.”

Prime Minister Lucas Papademos is racing to tie up the accord, key to a second financing package for the cash-strapped country, before a March 20 bond payment that will cost 14.5 billion euros ($18.6 billion) Greece doesn’t have.

The talks broke off Jan. 13 and resumed with Papademos, 64, and Venizelos, 55. IIF Managing Director Charles Dallara, 63, and Jean Lemierre, 61, a special adviser to the chairman of BNP Paribas (BNP) SA, are leading the negotiations for the creditors. Before talks resumed yesterday, Venizelos told lawmakers the discussions were at a “very fine point.”

Greece’s government could forge an agreement on a voluntary debt swap with private creditors by the end of this week, one finance ministry official told reporters in Athens before the talks ended yesterday. The official declined to be identified.

New Proposals

A separate government official said earlier that “all variables” are being taken into consideration and the parties are back with new proposals.

While the interest payment on the new bonds is the most visible aspect of the negotiations it’s not the only one, said the official, who declined to be identified. Collective action clauses, which would ensure creditors take part in the swap, could be legislated if the participation rate isn’t high enough, the official said.

An agreement reached Oct. 26 with European Union leaders and the Washington-based IIF, a lobby group for global financial institutions, called for private holders of just more than 200 billion euros worth of Greek government bonds to accept new securities with a face value of half that amount. As part of the deal, euro-zone members agreed to provide 30 billion euros in unspecified support. That could take the form of buying bonds from the private holders at 100 cents on the euro in cash, leaving them with new bonds with a face value of 70 billion euros.

Coupon in Question

Negotiations since then have centered on the interest rate the new bonds will pay, with Germany among those insisting on a low rate and the private creditors demanding a higher one.

A member of the investor group said they are likely to get cash and securities with a market value of about 32 cents per euro of government bonds.

“I’m highly confident the deal will get done,” Bruce Richards, chief executive officer of New York-based Marathon Asset Management LP, said in a telephone interview on Jan. 17 with Bloomberg Businessweek.

Marathon, which has $10 billion under management, is on the committee of 32 private creditors formed in November to negotiate with Greece, the International Monetary Fund and the EU. It’s not a member of the smaller steering committee directly involved in negotiations.

Credit Default Swaps

The new bonds will probably pay annual interest of 4 percent to 5 percent and have a maturity of 20 years to 30 years, Richards said. They may trade for about half of their face value, he predicted. Altogether, the net present value of the deal for the bondholders will be about 32 cents on the euro, he estimated.

Greek two-year notes dropped yesterday, pushing the yield up 676 basis points, or 6.76 percentage points, to 171 percent. It climbed to 184.56 percent, the most on record, on Dec. 10. The Greek security maturing in October 2022 advanced for a seventh day, with the yield sliding 11 basis points to 33.7 percent.

Fitch Ratings has said the October agreement would amount to a “default event” once implemented, while the International Swaps and Derivatives Association has said it wouldn’t trigger credit-default swaps bought by investors as insurance against the country failing to meet its obligations.

The creditors’ steering committee includes representatives from banks and insurers with the largest holdings of Greek government bonds, including National Bank of Greece SA, BNP Paribas, Commerzbank AG (CBK), Deutsche Bank AG (DBK), Intesa Sanpaolo SpA (ISP), ING Groep NV (INGA), Allianz SE (ALV) and Axa SA. (CS)

Financial firms on the IIF’s private-creditor investor committee, the larger group that includes the smaller steering committee, hold more than 47 billion euros in Greek sovereign debt, according to data compiled by Bloomberg from company reports.

To contact the reporters on this story: Maria Petrakis in Athens at; Natalie Weeks in Athens at Marcus Bensasson in Athens at

To contact the editors responsible for this story: Stephen Foxwell at; Jerrold Colten at Craig Stirling at +44-20-7673-2841 or

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