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Greek Bondholder Seeks Payment or Collateral Citing Finnish Deal

By John Glover - May 23, 2012

A holder of Greek bonds that weren’t settled in the biggest-ever debt restructuring said he’ll demand immediate payment unless the government posts collateral against his investment.

Rolf Koch, a private investor who says he holds 500,000 Swiss francs ($528,000) of the notes due in July 2013, argued that he’s entitled to equal treatment with Finland, which made getting collateral a condition of contributing to Greece’s second bailout. He wrote to the paying agent, Credit Suisse Group AG, invoking the bonds’ so-called negative-pledge clause, according to the text of a letter seen by Bloomberg News.
Greece issued the Swiss-franc bonds in 2005 under international rather than domestic law, which allowed holders to sidestep the more than 50 percent losses suffered by other investors in last month’s debt restructuring. If Koch is successful, other investors may follow his lead by claiming that the concession gained by Finland breaches the requirement that fresh debt doesn’t win priority over existing bonds.
“They broke the negative pledge when they gave collateral to Finland,” Koch said in a phone interview yesterday from Muehltal, Germany. “Now they should offer the same to me or pay me back.”

Unattractive Deal

Finland’s insistence on getting collateral last August threatened to derail the Greek bailout as other euro members sought similar terms. In the end, Finland had to abandon a bilateral deal with Greece that granted it cash security and accept an arrangement unattractive enough to deter imitators.
The deal involves the Nordic country speeding up its payments to Europe’s rescue fund. The collateral it receives is in the form of triple-A rated bonds due in 15 years to 30 years, paid for by a trustee selling Greek government notes transferred to it from domestic banks. This arrangement also allows Greece’s government to deny involvement.
“There is no involvement of the Hellenic Republic,” Petros Christodoulou, the head of the Public Debt Management Agency in Athens, said in an e-mail yesterday. Adam Bradbery, a London-based spokesman at Credit Suisse, said he was unable to comment.
Finland’s agreement, full details of which weren’t made public, won’t trigger negative-pledge clauses on Greek government bonds, the Finnish Finance Ministry said on Oct. 3.
There are 7 billion euros ($8.9 billion) of international bonds issued or guaranteed by Greece still outstanding after the sovereign restructuring, according to data compiled by Bloomberg.
To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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