Momentum is building on Greek debt swap

Momentum is building toward the Greek debt swap after initial investor feedback and European policymaker actions, said Charles Dallara, managing director of the Institute of International Finance.

“We’re quite encouraged by reactions we’ve heard and certainly expect this to be a very successful deal,” Dallara said in an interview on Bloomberg Television today. “The reactions that I’ve heard from key investors have been quite positive. We are sensing momentum building.”

Private creditors, represented by Dallara and the IIF, reached an agreement with Greek and European officials last week on the biggest sovereign restructuring in history. The plan seeks to reduce Greece’s debt burden by about 107 billion euros ($141 billion) and the swap is meant to help lower the country’s debt to 120.5 percent of gross domestic product by 2020.

Under the deal, investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility.

Default insurance on Greek debt won’t be paid out, the International Swaps & Derivatives Association said earlier this week after it was asked to rule whether part of the nation’s bailout was a credit event.

Dallara said he wasn’t surprised about the decision and that private creditors are aiming to keep the agreement voluntary, adding that he doesn’t see the Greek debt restructuring as a “blueprint” for other European economies.

ISDA “may well decide at some point to review the matter again. For the time being I think things are on course, and this decision yesterday was not a surprise,” Dallara said. When asked whether a triggering of CDSs would destabilize the financial system, he said, “I think there has been an exaggerated degree of concern about this.”