MADRID (MarketWatch) � The Greek government moved a step closer to securing a much-needed second bailout on Friday, announcing 83.5% of its private-sector bondholders agreed to a bond-swap deal, with expectations that proportion would rise.
The takeup rate was short of the 90% needed to prevent legal force to get the rest of the private bondholders to participate. As a result, Greece�s finance ministry said it had gotten approval for collective-action clauses, or CACs, which would bring the total participation rate to 96% by essentially forcing some bondholders on board.
The government has also given some bondholders an extended deadline to March 23.
The deal�s success cuts Greece�s debt burden by more than 100 billion euros ($132 billion), with the participation rate of 83.5% representing �172 billion out of the �206 billion total eligible bondholdings.
�With the support of our official sector and private creditors, Greece will continue implementing the measures needed to achieve the fiscal adjustments and structural reforms to which it has committed, and that will return Greece to a path of sustainable growth,� said Evangelos Venizelos, deputy prime minister and minister of finance for Greece.
All 15 members of an International Swaps and Derivatives Association committee � consisting of big banks like Goldman Sachs and J.P. Morgan, and investors like Elliott Management and PIMCO � ruled the move a �restructuring credit event.� ISDA will hold an auction on March 19 to determine how much will be paid out on credit-default swap contracts.
As of last week, the net exposure on CDS was $3.2 billion. So if the auction showed the recovery value to be 25%, then 75% of the $3.2 billion, or $2.4 billion, would be paid out to owners of CDS.
In a conference call Friday, ISDA Chief Executive Officer Robert Pickel said he does not see a significant impact on the financial market from the Greek default and that most of the Greek CDS exposure is collateralized.Click to Play What's Greece's latest moves mean
The complicated chess game in Greece might be nearing a Friday deadline, but then what? A rundown of what to expect from Greece in the next few weeks. (Photo: Associated Press.)
Eurogroup President Jean-Claude Juncker said euro-area finance ministers welcomed the outcome of the bond-swap offer, saying it will make a �significant contribution to improve Greece�s debt sustainability.�
The statement was made following a teleconference call by those ministers to discuss the results of the bond swap. He said the Eurogroup expects the participation rate to go even higher, in light of the extended deadline for some bondholders. And it also means Greece is one step further along toward getting its second bailout, he said.
�The Eurogroup considers that the necessary conditions are in place to launch the relevant national procedures required for the final approval of the euro area�s contribution to the financing of the second Greek adjustment program,� he said.
Both euro-area finance ministers and the International Monetary Fund will hold meetings next week to seek formal approval on the bailout package.
In a brief statement, the IMF also put its stamp of approval on the deal. �This is an important step that will dramatically reduce Greece�s medium-term financing needs and contribute to debt sustainability,� said IMF Managing Director Christine Lagarde.
�This support by the private sector is a key component of the contribution by all parties to put Greece�s economy on a path of growth and financial stability,� she said.
More plaudits earlier came from the Institute of International Finance, a lobby group for the world�s largest banks that has been one of main negotiators for that side. It earlier hailed the agreement as a key step toward resolving Greece�s debt crisis.