June 30, 2015 / 12:17 PM / 4 years ago

Greece's July 20 repayment to ECB moves into focus

* Failure to pay the ECB could trigger cross-default clauses

* S&P believes chances of Greece exit from eurozone are 50%

By Abhinav Ramnarayan

LONDON, June 30 (IFR) - With Greece set to miss a 1.6bn repayment to the IMF on Tuesday, market participants have turned their attention to a payment to the European Central Bank due in July, particularly as a failure to meet that could trigger cross-default clauses.

The beleaguered nation, rated Caa2/CCC-/CCC, is due to make a 3.49bn payment to EU institutions led by the ECB on July 20. This is just two weeks after it is scheduled to hold a referendum on whether or not to accept the EU’s terms for renewing a bailout package.

A renewal of the existing bailout would free up 7.2bn of funds for making those repayments. Without this, it is possible that Greece would head towards a default and an exit from the eurozone.

A failure to pay the IMF on Tuesday would put Greece in arrears, but as this does not trigger any cross-default clauses, it will not affect any of Greece’s debt to private creditors or to EU institutions.

“Although the likely missed payment today to the IMF is a default in the legal sense, it would not constitute a commercial default under S&P’s criteria,” analysts at Citigroup said in a note.

Going into arrears on the IMF payment does give Greece’s main creditors, the European Financial Stability Facility, the option to accelerate payments on some of the loans dispersed to the country.

Greece owes the EFSF 141.9bn, according to researchers at RBC Capital Markets, though those loans only start maturing in 2022 and there is a holiday on coupon repayments until that period.

The EFSF did not immediately respond to request for comment on whether it would exercise this option, but market participants said it was unlikely.

“Potentially, some EU loans extended to Greece could be accelerated in the event of a declaration of arrears to the IMF, but we think this is very unlikely - not least because Greece can’t, as well as won’t, pay,” said David Riley, head of credit strategy at BlueBay Asset Management.

That being the case, the focus has turned to the repayment due to the ECB on July 20; a failure to make this could have worse consequences.

Market participants said there is a 30-day grace period in place, but the ECB declined to comment on the subject when contacted by IFR.

“Missing an IMF payment has very light immediate consequences, although it could push creditors or the ECB to ask Greece for capital controls,” said Alberto Gallo, head of macro credit research at RBS.

“Missing the ECB/EIB payment on July 20 triggers tougher consequences: it may mean a freeze in bank ELA liquidity. After one month, it will also trigger legal default, cross-default on other obligations, and default by rating agencies,” he said.


Greece was downgraded one notch to CCC- by Standard & Poor’s with a negative outlook, with the ratings agency believing that a commercial default is inevitable within the next six months, barring “unanticipated favourable changes in Greece’s circumstances”.

It also believes that there is a 50% chance that the country will exit the eurozone.

“The negative outlook indicates that we could lower the long-term ratings to ‘SD’ [selective default] within the next six months in the event of a distressed exchange or non-payment of Greece’s commercial debt, including treasury bills,” the agency said in a note. (Reporting By Abhinav Ramnarayan; Editing by Philip Wright, Julian Baker and Helene Durand)

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