More Greek Creditors Back Swap

By CHARLES FORELLE , NEKTARIA STAMOULI and MATINA STEVIS

The Wall Street Journal 

More than 75% of Greece's private-sector creditors have pledged to take part in Greece's €200 billion ($262.98 billion) debt swap, according to a Greek government official.

The government official, speaking hours before Thursday's deadline for bondholders to make their intentions known, said participation as of Wednesday had reached 75%. A Greek cabinet minister late Thursday said the participation was "around 80%."

Those high numbers indicate that Greece will go ahead with the restructuring—the largest-ever sovereign-debt default and the first for a Western European country in half a century. It also can employ so-called collective-action clauses to bind in some of the reluctant creditors.

Speaking in Rio de Janeiro, Charles Dallara, managing director of the Institute of International Finance, a lobby group for the world's largest banks, expressed optimism that participation among bondholders will be "very, very high."

Mr. Dallara negotiated for creditors in the deal.

The final tabulation is due to be released at 8 a.m. Athens time on Friday.

The debt swap is a signature moment for the euro and for the debt crisis that has threatened it for more than two years.

European leaders insisted for more than a year that Greece wouldn't be allowed to fail; then, last year, it became apparent that the costs of keeping it afloat were too much for the rest of the euro zone to bear.

A first proposal for a debt restructuring, in July, asked private creditors to forsake on average 10% of the face value of their holdings.

As Greece's finances deteriorated, that plan evaporated.

The restructuring now set to be executed will see Greece chop 53.5% from the face value of around €200 billion in bonds.

If the Greek official's assessment is confirmed by Friday's tally, several steps will then follow.

Greece can invoke so-called collective-action clauses to require the holders of €177 billion in government debt issued under Greek law to exchange their bonds for the new securities.

An additional €29 billion is a mixture of state-guaranteed debt and bonds issued under the laws of foreign jurisdictions, where Greece's room to maneuver is more limited.

Greece's laws—changed in February—permit the country to bind all Greek-law holders to the exchange with the consent of two-thirds.

With three-quarters of the €206 billion voting in favor, Greece has more than €150 billion in "yes" votes.

Even if all of the €29 billion in other bonds is part of that total, the balance exceeds the two-thirds threshold needed to force the Greek law holders.

Forcing in all of the Greek-law holders means at minimum 86% of the eligible bonds will be restructured.

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A portion of the remaining 14% is likely to opt for the restructuring as well, meaning in all likelihood at least 90% will be restructured.

Formally, Greece must consult with its euro-zone rescuers before invoking the collective-action clause; a teleconference of euro-zone finance ministers is scheduled for 1 p.m. Brussels time on Friday.

Greece has said repeatedly that it doesn't have money to pay any holdouts, so court battles over the remaining sliver will ensue.

The use of force would also almost certainly trigger credit-default swaps, insurance-like contracts that pay off when a creditor suffers losses.

A panel convened by the International Swaps and Derivatives Association, an industry group, is responsible for deciding when the swaps are triggered.

That decision could come as soon as Friday.

On Monday, the new Greek bonds will be issued for trading.

Bondholders who submit to the swap—or are forced to do so—will get a package of securities including cash or high-quality short bonds issued by the euro-zone rescue fund worth 15% of the face value of whatever they exchange, plus a series of Greece bonds maturing over the next 11 to 30 years worth 31.5%.

Those bonds have already begun trading in a hypothetical "gray market," said people familiar with the matter.

The new 30-year bond was quoted between 15 and 17 cents, and an 11-year bond at between 20 and 22 cents.

Those levels indicate that investors think Greece will still be unlikely to meet all its obligations after the restructuring.

—Costas Paris,

Alkman Granitsas, Diana Kinch

and Katy Burne

contributed to this article.

Corrections & Amplifications

Investors' participation in Greece's ambitious debt restructuring plan is known as the private-sector involvement, or PSI. An earlier version of this article misstated it as the public-sector initiative. Also, the deadline of bids is Thursday at 8 p.m. GMT. An earlier version of this article incorrectly said it was 10 p.m. GMT.