If bondholders reject the debt deal entirely, there will be a big problem. Photo: AFP
So this is it. After three years of high drama, the European Union is staring at its first ever sovereign default and, ironically, unlike every other deadline so far, this one looks set to be adhered to.
At 8pm GMT tonight (7am, AEDT, Friday morning), the authorities will know - or have a very good idea - how many of Greece’s international creditors have accepted its 206 billion euro ($256 billion) bond-swap offer.
The results will probably take a few days to come out - Athens has to put its decisions through Brussels’ sluggish decision making processes - but this time it isn’t up to the politicians so the possible outcomes are clearer.
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1. A miracle:
95 per cent of Greek bondholders accept the deal, allowing a purely ‘‘voluntary’’ restructuring to go ahead. Athens is desperate to secure a ‘‘voluntary’’ agreement from bondholders - crucial to protecting its word and reputation in international markets, as well as avoiding a dreaded ‘‘disorderly’’ default.
Both the hurdle and the deal - creditors are being asked to swap their bonds for new ones worth around a third of the value - are tough. The International Institute of Finance, the body that has negotiated with the Greek government on behalf of bondholders, said its members ‘‘intend to participate’’ in the deal.
The group released several tallies yesterday, in the latest of which they said they spoke for bonds ‘‘amounting in aggregate to 84 billion euros, or 40.8 per cent of the 206 billion euro total PSI eligible debt.’’
A raft of international banks have announced their intention to accept the deal, too, but we already know some are voting against.
2. A forced deal:
between 66 per cent and 90 per cent of bondholders accept; Athens steps in and imposes the deal on the others. In Athens, the voluntary deal seemed unobtainable weeks ago. So last month politicians approved of Collective Action Clauses (CACs) being inserted retrospectively if necessary.
These CACs allow the government to foist the deal on all bondholders if 66 per cent of those who vote approve the deal. So the deal will get done but this time the coercive element can’t be ignored: rating agencies have said they will declare Greece to be in default.
The International Swaps & Derivatives Association is also likely to reconvene to decide if the credit default insurance ought to be triggered.
less than 66 per cent approval, pointing to a disorderly default. If bondholders reject the deal entirely, there will be a big problem.
In a strongly-worded statement on Tuesday, Greece said it ‘‘does not contemplate the availability of funds’’ to bondholders who refuse to accept the deal. Berlin has said it will not release the 130 billion euro bail-out funds without a deal. Greece needs the cash to repay a 14.5 billion euro bond due on March 20.
What happens then is unknown: it hasn’t happened before.