By Sarah White and Tommy Wilkes
LONDON, March 8 (Reuters) - Some hedge funds have found a legal loophole they believe will force Greece to repay some of its debt in full, three sources close to the matter said on Thursday, in a move that would intensify the standoff between the country and its debtors.
Greece closed a bond swap offer to private creditors on Thursday after clearing the minimum threshold of acceptance to push the biggest sovereign debt restructuring in history.
Government officials said more than 75 percent of eligible bonds had already been committed resulting in losses of some 74 percent on the value of the debt in a deal that will cut more than 100 billion euros from Greece's crippling public debt.
But because of a provision written into one particular bond, some hedge funds believe that Athens has already defaulted on that bond by asking bondholders to exchange their debt for new paper with a much lower value, according to the sources.
The funds are now trying to buy up enough of the bond -- issued by state-owned Hellenic Railways and guaranteed by the government -- to force Greece to repay them in full, to the tune of some 400 million euros ($530.92 million).
If Greece refuses to do so, this may trigger similar provisions on other Greek railway bonds, potentially landing Athens with a bill of about 3 billion euros, with investors demanding immediate repayment, the sources said.
However, it is unlikely the hedge funds could derail the overall debt swap, which will shave more than 100 billion euros off Greece's debt pile, a crucial precondition for receiving more international aid and staying in the euro.
The exchange has already been accepted by more than 75 percent of investors, a senior official told Reuters ahead of Thursday's 2000 GMT deadline.
The hedge funds have been targeting some of Greece's more investor-friendly foreign law bonds -- like the railway bond -- hoping to stop Athens from activating so-called Collective Action Clauses (CACs), used to impose losses on all holders.
This could then allow them to squeeze a bigger payout, potentially through lengthy court challenges, while creditors that do sign up to the bond swap face losses of 74 percent on their investments.
Athens has already warned that it does not have the money to pay these so-called "holdouts", but sources close to its negotiations are now concerned it may well have to pay out some smaller bonds in full to make the problem go away.
"What really infuriates me is that some of them (hedge funds) might manage to get paid in the end, on small amounts it's still possible," said one of the sources.
Some 15 pe rcent of Greece's 206 billion euros of bonds held by private sector investors are issued under foreign law.
The problematic transport bond - a 412.5 million euro issue maturing in 2013 - has a clause that allows bondholders to argue that Greece is in default if it is trying to restructure or change the terms of its debt, the sources said.
The creditors could already argue that Athens has defaulted, and if they buy up a quarter of that bond -- or enough of it not to be forced into the debt swap -- they can also then demand immediate repayment, a process known as acceleration.
Sources close to Greece's negotiation fear the funds could already start the acceleration process by Friday, or next week, if they find they have a big enough majority.
Final meetings concerning the swap of foreign law bonds take place at the end of March.
Although these clauses only concern this one bond, the action by hedge funds could trigger clauses contained in other Greek railway bonds.
And because of the provisions in other bonds governed by English law, this could eventually affect more deals, potentially affecting up to 8-9 billion euros worth of debt, one of the sources said.
($1 = 0.7534 euros) (Additional reporting by Sophie Sassard, Editing by Douwe Miedema)
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.