Greece and its private creditors are beginning a final push to renegotiate debt as 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 yesterday with Bloomberg Businessweek. The government may forge a deal by the end of this week after talks resumed in Athens today, a finance ministry official told reporters in the Greek capital. He declined to be identified.
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 European Union. It’s not a member of the smaller steering committee directly involved in negotiations. The talks, under the auspices of the Institute of International Finance, broke off Jan. 13 resumed today with Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos.
Richards, 51, said he expects Greece won’t make a 14.5 billion euro ($18.5 billion) bond repayment scheduled for March 20, and that a deal with creditors will be in place before then. Investors who agree will probably be paid the new package of cash and bonds shortly after that date, he said.
There are still obstacles to concluding what negotiators term a “consensual restructuring.” Official lenders may object if they conclude that the deal would be too expensive for Greece, forcing the country to go back for more official support later.
“I can only tell you the negotiations are continuing,” said Frank Vogl, an IIF spokesman. “I can’t tell you whether they’ll be successful.” The IIF, a global association of financial institutions, is chaired by Josef Ackermann, the CEO of Deutsche Bank AG.
Ackermann, 63, told reporters in Frankfurt last night that there are two weeks to reach an agreement. He said he still expects a debt deal will be reached, though can’t rule out the possibility of failure.
IIF Managing Director Charles Dallara, 63, and Jean Lemierre, 61, a special adviser to the chairman of BNP Paribas SA, are leading the negotiations for the creditors.
Talks on Interest
An agreement reached Oct. 26 called for private holders of just more than 200 billion euros worth of Greek government bonds to accept new bonds with a face value of half that amount. As part of the deal, euro-zone members agreed to kick in 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.
Negotiations since then have centered on the interest rate new bonds will pay, with Germany among those insisting on a low rate and the private creditors demanding a higher one.
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, pushing the yield up 838 basis points, or 8.38 percentage points, to 172 percent at 9 a.m. London time. 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 63 basis points to a six-week low of 33.18 percent. The price rose to 21.41 percent of face value.
It’s not yet clear whether the deal will cover all outstanding Greek bonds or just those maturing by the end of 2020, Richards said. He also said that the deal probably won’t contain a sweetener to reward creditors in case of a strong improvement in the health of the Greek economy in coming years.
The tentative deal may win support from investors holding 70 percent to 80 percent of the privately held Greek bonds, he estimated. He favors the deal, saying that investors who refuse may get back less.
“There’s a very, very high probability that this goes through,” he said. “It’s the best deal creditors can get.”
Credit Default Swaps
The deal might still trigger credit-default swaps if some investors refuse to participate or are forced through a so-called collective action clause, Richards said, declining to say whether he has purchased swaps that would pay off if triggered by a deal.
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.
Marathon, which was founded in 1998 by Richards and Louis Hanover, began in August to raise a new fund to take advantage of the European debt crisis.
“We’re very focused on this opportunity,” Richards said, declining to discuss the fund or to say how much Marathon has invested in Greek bonds.