Greek Foreign-Bond Restructuring Rejected in Talks Last Week

Investors in Greek bonds issued under foreign law rejected the nation’s attempts to restructure the debt at talks last week.

In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum, according to a press release today from the Greek Public Debt Management Office.

The meetings involved holders of about $26.8 billion of foreign-law notes denominated in dollars, euros, Swiss francs and yen. Investors owning $15.3 billion of securities agreed to a restructuring, leaving $11.5 billion still to be dealt with.

“The key thing with the international bonds is that holders have to vote bond-by-bond rather than in aggregate,” said Thomas Costerg, European economist at Standard Chartered Bank. “That makes it easier for investors to block the restructuring and raises the question of what Greece can do now.”

Greece is trying to re-organize the rest of its debt after carrying out the biggest sovereign restructuring in history last month. The government is insisting there’s no money to fully pay holders of bonds issued under international law, after it forced investors in 197 billion euros ($263 billion) of domestic-law securities to accept losses of about 70 percent.

‘Issue of Fairness’

Greece’s options include opening talks with holdouts to reach a mutually acceptable compromise, paying up in full or refusing to pay at all, according to London-based Costerg.

“Paying up in full would raise the issue of fairness regarding the domestic-law bondholders, while a hard default would make litigation likely,” said Costerg. “The bottom line is that this reminds investors that the Greek crisis and the euro-area crisis aren’t over.”

Holders of a 450 million-euro floating-rate note that falls due on May 15, the closest maturity on the international bonds, rejected the restructuring deal, according to the press release.

The country has a 30-day grace period to make the payment, data compiled by Bloomberg show. How to handle the debt maturity will be an early test for a new government that may be elected as soon as this month to replace Prime Minister Lucas Papademos’s interim administration.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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