LONDON, March 9 (Reuters) - A small minority of investors are prepared for a legal battle over 9 billion euros ($12 billion) of Greek bonds issued under foreign law in an effort to secure a better deal than the one offered in Greece's bond swap.
Greece has declared victory in the biggest sovereign bond restructuring, allowing it to write off more than half of the 206 billion euros of its debt which is held by private investors. [
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A 4.3 percent minority are holding out. Greece has extended the deadline for them to accept the offer to March 23 in an attempt to avoid protracted and costly court battles.
Some hedge funds think they have found a legal loophole to force Greece to repay them more than they have offered other investors, sources close to the matter have told Reuters, and the standoff now looks set to intensify. [
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The majority of investors have agreed to swallow a loss of about three-quarters on their Greek bonds by swapping them for new 30-year debt paying lower interest rates. Because of the scale of acceptance, Greece is able to "sweep up" all the other holders of Greek law bonds and force them to accept the swap.
But UK and other foreign law bondholders cannot be so easily forced to participate. This affects 29 billion euros, or 14 percent, of Greece's bonds. Greece said investors holding 20 billion euros of these bonds have agreed to swap, and is now targeting the remainder.
DEFAULT?
Some hedge funds believe Athens has already defaulted on at least one of the bonds by asking investors to exchange their debt for new paper with a much lower value.
Investors have built up a blocking stake of about 75 percent in at least one of the Greek railway bonds -- issued by state-owned Hellenic Railways and guaranteed by the state, one source said.
Two sources have told Reuters that funds with blocking stakes in those deals plan to serve Athens with a formal notice that they consider Greece to be in default as early as next week.
Funds will also try to build blocking stakes in other more investor-friendly foreign law bonds, hoping to stop Greece from activating so-called collective action clauses (CACs), which impose losses on all holders. They are focusing on a 650 million Swiss Franc bond and a 450 million euro bond maturing in May, one of the sources said.
Earlier this week law firm Bingham McCutchen said it was advising a group of investors with a "material" portion in the Swiss-law governed bond who have teamed up to challenge the terms of Greece's debt exchange. [ID:nL5E8E6A37
Athens repeated its warning on Friday that it does not have money to pay any holdouts, but it could have to sweeten its offer on some bonds to make the problem go away.
Greece was able to implement the CAC on all of its Greek law bonds after retroactively changing the law, but each of the foreign law bonds - there are about 36 - are dealt with separately and have their own levels to force a CAC. It is 66 percent or 75 percent on most of the issues.
"The whole ethos of collective action clauses is that a supermajority can act collectively to bind all holders, so minorities don't hijack a process for their own ends. So that's worked effectively for Greece to reach a successful level," said
Andrew Montgomery, head of liability management in EMEA at HSBC <
HSBA.L> , which ran the bond swap offer with Deutsche Bank