Bondholders back €200bn Greek debt swap Large holders of Greek government bonds promised strong participation in next month's €200bn debt swap, despite an unexpected last-minute toughening of the conditions. Charles Dallara, who led the negotiations with Athens and eurozone officials on behalf of the bondholders, described the agreement as "a solid deal" even though the haircut investors will have to take was increased from 50 to 53.5 per cent in the early hours of Tuesday morning after more than 12 hours of negotiations. "The biggest benefit here . . . is we've been able to avoid a disorderly default," said Mr Dallara, the managing director of the Institute for International Finance. Heavy participation remains crucial for the deal and the success of Greece's second international bail-out in two years. The latest official debt sustainability study on Greece assumes 95 per cent of investors will participate in what is being sold as a "voluntary deal." In private, large bondholders say the take-up is likely to be high, if only because the alternative of a full-blown Greek default is so bad. But none are willing to guarantee a participation rate, which will depend on Greece's ability to squeeze investor holdouts through collective action clauses. These allow the decision of a supermajority, often about 70 per cent, to be imposed on all other investors. "This deal is clearly at the absolute limit of what can be called voluntary," said one large European bondholder. The harsher terms do leave somewhat of a bitter taste in the mouth. But ultimately we didn't have very good cards in our hand. None of us wanted a disorderly default. Another said: "The participation rate is always going to be a bit of guess work. This is a fantastically complicated deal with lots of moving parts. You just have to hope everybody realises their responsibilities. The bond swap would eliminate €100bn in Greek debt if all of the estimated €200bn in private holdings takes part in the deal, due to close in mid-March ahead of a large Greek bond redemption on March 20. Bondholders will receive new debt with substantially lower interest rates of 2 per cent for the first three years, 3 per cent for the next five, and 4.2 per cent after that. Analysts estimate the net present value loss for investors will be close to 75 per cent. But some investors are playing up parts of the deal that would allow them to benefit from any recovery in Greece. Mr Dallara, talking about growth trackers that would pay higher interest rates in the case of stronger growth, said: "I may be in the minority but I think Greece can pull it round. No sovereign has had €100bn lifted off its back in a couple of weeks and this has just happened. One of the large investors also underlined that Greece one day could have the incentives to buy back the new bonds being issued, potentially making them more interesting for investors.