Greece debt swap down to the wire

Greece is on the verge of a make or break moment. The nation has until the end of the day to decide whether or not to accept a proposed restructuring of Greek government bonds. In order for Greece to avoid a default, there needs to be a significant number of bondholders who will volunteer for the debt swap.

By CNNMoney staff
March 8, 2012: 12:23 PM ET
CNN Money

NEW YORK (CNNMoney) -- Greece is on the cusp of what could be a real make or break moment.

The nation's private sector creditors have until the end of the day to decide whether or not to accept a proposed restructuring of Greek government bonds.

There have been signs that a significant number of bondholders will volunteer for the debt swap, which Greece needs to avoid a default.

The terms of the restructuring are not attractive for bondholders. They have been "invited" to voluntarily take part in a writedown and debt swap that could result in losses of up to 75%.

For Greece, and the eurozone, the stakes are potentially huge.

The agreement on private sector involvement, as it is known, is the final hurdle Greece must clear to meet all the conditions of its second €130 billion bailout program from the European Union and International Monetary Fund.

An announcement is expected to be published around 1 a.m. ET Friday on the official government website for the exchange. Greek Prime Minister Lucas Papademos said Finance Minister Evangelos Venizelos is expected to update the cabinet about the latest developments sometime Thursday.

The IIF, which represents private sector creditors, announced Wednesday that a group of more than 30 institutions had agreed to participate. The banks, insurance companies and other investors own an aggregate €84 billion worth of Greek bonds, which amounts to 40.8% of the €206 billion that Greece owes the private sector.

That participation rate neared 60% Thursday, according to news reports. That's closing in on the unofficial target of at least 66%. Anything below that threshold might not be considered voluntary, which would make it difficult to argue that the action was collective. Greece gets a reprieve

On the other hand, if more than 66% of investors volunteer for the restructuring, Greece could use collective action clauses to make the terms binding for all bondholders. That could result in an effective participation rate of 100% of domestically issued Greek bonds and unlock the full amount of Greece's bailout.

The deadline for bids is Thursday at 3 p.m. ET.

The agreement involves investors volunteering to write down 53.3% of the value of the bonds and swap Greek debt for securities with lower interest rates. It would eliminate €107 billion from Greece's debt load and save the nation another €150 billion in refinancing costs over the next few years, according to the IIF.

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