ECB Greek Plan May Hurt Bondholders While Triggering Debt Swaps

The European Central Bank’s plan to shield its Greek bond holdings from a restructuring may hurt private investors while paving the way for debt insurance contracts to be triggered.

The ECB will exchange its Greek debt for new bonds with an identical structure and nominal value, though they’ll be exempt from so-called collective action clauses the government is reportedly planning. That implies senior status for the ECB over other investors, according to UBS AG, and the use of CACs may lead to credit-default swaps protecting $3.2 billion of Greek bonds being tripped.