KfW to Take Part in Greek Debt Swap Amid Concern It May Fail

KfW Group, Germany’s state-owned development bank, will take part in the Greek debt swap as it observes growing market concern the southern European country may fail to garner sufficient participation.

KfW, which has about 250 million euros ($328 million) in gross Greek sovereign holdings, will exchange its debt, Chief Executive Officer Ulrich Schroeder told reporters last night in Frankfurt. While he expects “big players” to participate, he said potential holdouts include asset managers, retail investors and holders of Greek bonds issued under Japanese and U.K. law.

“There is rising skepticism” about the success of the debt swap, Schroeder said, citing feedback from capital markets. “I’d be happy if we’re wrong.”

Private creditors reached an agreement with Greek and European officials last month on the biggest sovereign-debt restructuring in history. The goal of the exchange, which runs through March 8, is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent, helping avert a disorderly default that could roil markets and fuel contagion.

Germany’s biggest banks and insurers said they plan to take part in the Greek debt swap. Fourteen German firms holding more than 19 billion euros of Greek government bonds will take part in the exchange, according to company statements and people with knowledge of the plans who declined to be identified.

Forcing Acceptance

The Greek government, which set a 75 percent participation rate as a threshold for proceeding with the transaction, said it will use collective action clauses to force holders of Greek-law bonds to accept the swap if it receives sufficient consent from investors. That would likely be considered a credit event and trigger credit-default swaps, KfW’s Schroeder said.

Schroeder is concerned about CDS on Greek sovereign bonds because of the “lack of transparency” about who holds the debt insurance and there may be some financial firms that sold too many CDS, he said.

Net notional credit default swaps on Greek government bonds total $3.2 billion while the gross notional amount of CDS is more than $69 billion, according to Bloomberg data based on DTCC.

The amount of Greek government bonds issued under non-Greek law total 29 billion euros, or 14 percent of the total 206 billion euros, Frankfurt-based KfW said, citing the swap invitation memorandum.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net

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