Greece: “good luck for the next restructuring…”

As the euro crisis rumbles on, confirmation, if any were needed, that Greece is, indeed, heading back to the polls.  You can follow further developments on the Guardian’s live-blog

Meanwhile, having cajoled the vast majority of their private sector creditors into taking part in a bond swap deal in March, the Greek government [who? – Ed] outgoing prime minister technocrat-in-chief, Lucas Papademos, has opted to pay up, on a May 15 due bond, to those who held out at the time.  From the Irish Times hosted Reuters report

In an about-face, Greece opted to pay holders of €430 million of a May 15th bond, despite having told those who took its bond swap offer in March that they would otherwise get nothing, government officials said.

The decision averts litigation by the bondholders, and will infuriate the 96.9  per cent of creditors, mainly European banks, who agreed to take the deal.

“Greece’s strategy has been to openly say that it won’t pay holdouts, possibly in the hope at least some of them would go away,” said Steven Friel at legal firm Brown Rudnick, who advises creditors holding other Greek bonds that were not exchanged under the swap.

“This decision sets a commercial, if not a legal, precedent that they are willing to meet their obligations to pay bondholders in full for the other international law bonds that will mature in coming years,” he said.

A source close to private creditors involved in the swap, who declined to be identified, called it “scandalous” and wished Greece “good luck for the next restructuring”.


Adds  From the Guardian live blog

James Campbell, partner at international law firm Pillsbury, argues that Greece was in a terribly difficult position. Had it not paid the €435m, it would have defaulted. But by paying up today, it faces the risk of legal action from bond-holders who did take a haircut (losing 70% of the value of their bonds).

“That Greece has paid may not be the end of the affair. We can see significant protests from those bondholders who agreed to previous debt restructuring on the basis that Greece said that there was no money available to do anything else. Lawsuits may follow if previous “co-operative” bondholders view this as a misrepresentation.

“Furthermore, Greece’s decision to pay will be seen as a victory for the hold-out bondholders which will embolden them. In March the press widely reported that funds were buying up bonds issued by Hellenic Railways and guaranteed by the state. Like the bonds repaid today, those bonds are governed by English law and the proposed restructuring of them was not successful. These bonds are up next for repayment and we will be monitoring developments with interest. Greece may only have deferred the pain for another day.”

Just what Greece needs right now, a legal battle with international investors….