Greece, Hedge Fund Creditors Still Far Apart, As Latter Mull Lawsuit

Jan 19 2012 | 12:50pm ET

Greece and its creditors, hedge funds prominent among them, remain at odds over the issue of the interest rate the heavily indebted country will pay on new bonds.

Talks resumed yesterday, with International Institute of Finance chief Charles Dallara, representing private holders of Greek debt, flying to Athens to deal directly with Greek Prime Minister Lucas Papademos. But while progress was made on several smaller issues, the two sides remain split on the coupon Greece will pay on new debt as part of a deal to slash its debt by €100 billion, Reuters reports.

A deal is needed soon—some say by tomorrow afternoon—to free up further bailout funds and keep Greece from defaulting in March. But creditors have balked at an offer from Greece and its lenders of a 3.5% coupon, which would represent a roughly 70% haircut for investors. Dallara is pushing for 4%, which would reduce the lost to closer to 50%.

Papademos has threatened to pass legislation forcing the holdouts to accept its terms. Its hedge fund creditors have produced a threat of their own: to sue Greece in the European Court of Human Rights, accusing the country of violating bondholder property rights.

Greece's proposed legislation would exempt the European Central Bank.

Some of the hedge funds are not thrilled about the prospect of extended litigation in the European courts, The New York Times reports.

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