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Fidelity says Greek debt-swap holdouts at risk of non-payment

Bondholders planning to resist Greece’s debt swap are unlikely to get paid in full, according to Fidelity Investments and JPMorgan Chase & Co.

 “I struggle to imagine a situation where holdouts get paid at par,” said Nick Eisinger, a sovereign analyst in London at Fidelity Investments, the second-largest U.S. mutual fund company, according to Bloomberg.

“It’s hard to imagine a scenario in which Greece capitulates, because of the political message that sends and also, they just don’t have the money.”

Investors holding bonds governed by laws other than those of Greece have until 10 p.m. Athens time today to decide whether to participate in the nation’s plan to obtain a reduction of more than 50 percent on its obligations to private investors. Evangelos Venizelos said on March 9, when he was the nation’s Finance Minister, that sweeteners offered in the debt exchange,  wouldn’t be available after today’s deadline.

Greece has already used so-called collective-action clauses to compel all investors in the nation’s domestic-law debt to take part in its swap. For the international-law securities, investors may have built up positions in individual bond series that are large enough to hold out against a similar course of action, Ioannis Sokos, a fixed-income strategist at BNP Paribas SA in London, wrote in a March 15 report.

Investors holding Greece’s Swiss franc-denominated bonds formed a group to fight for their rights, according to a March 6  statement from their New York-based legal adviser Bingham McCutchen LLP.

 The Mediterranean nation may negotiate to repurchase bonds  that it can’t force into the debt swap to avoid failing to make payments on the securities altogether, Fidelity’s Eisinger said.

Still, since the decision to use collective-action clauses has already triggered a payout on credit-default swaps insuring the debt, Greece may choose not to pay, according to Kedran Panageas, a fixed-income strategist at JPMorgan in London.  “The holdouts have lost leverage with Greece,” she said.  “Greece and the European Union would like to avoid a non- payment, but if a large number of holdouts appear to want to cause trouble, I think they may threaten not to pay.”
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