Armstrong Says There’s ‘No Incentive’ to Agree to Greek Swap

Armstrong Investment Managers LLP, a London-based money manager that oversees about $350 million, said it won’t participate in Greece’s debt swap because it may recoup more money by holding out.

There’s no incentive to agree to the debt exchange because investors are likely to be swept in anyway by so-called collective action clauses, Managing Director Patrick Armstrong said in an interview with Bloomberg Television today. Holders of Greek bonds that mature this month have a “small window” of getting paid out at face value if they hold out, he said.

“There is no incentive to participate,” Armstrong said. “If I do not, most likely, I will end up with the same terms.”

The Greek government, which set a participation rate of 75 percent of private debt holders for proceeding with the swap, has pledged to use collective-action clauses to force owners of Greek-law bonds to accept the exchange if it receives sufficient consent from investors. The swap, which runs through March 8, is aimed at preventing a disorderly default by reducing the 206 billion euros ($271 billion) of privately held Greek debt by more than half.

Armstrong’s holdings of Greek bonds are a “very small trade we put on a year ago,” Armstrong said. The firm hedged the investment by betting that bank stocks will decline, because lenders will have to pay out on credit-default swaps they sold once the debt swap is imposed on all bondholders, he said.

Credit-default swaps are a form of insurance that pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Analysts have said that CDS payments would be triggered if Greece uses the collective-action clauses.

Forced Losses

The Greek debt swap will require investors to accept net present value losses of more than 70 percent on their holdings. Greece expects a sufficient number of investors to accept the exchange and is prepared to force them to participate if necessary, Finance Minister Evangelos Venizelos said in a Bloomberg Television interview this week.

Societe Generale SA, Assicurazioni Generali SpA and UniCredit SpA have said they will take part in the swap, joining Greece’s six largest banks. The lenders are among the biggest private bondholders of Greece’s sovereign debt, according to data compiled by Bloomberg.

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