--Fund manager who helped negotiate Greek debt swap sees new securities as 'much better' than old ones

--Despite mounting woes, Greece's exit from euro unlikely, Ferro says

--Europe in crisis but leaders understand the stakes, he says

 
   By Javier E. David 
   Of DOW JONES NEWSWIRES 
 

NEW YORK (Dow Jones)--"Quality" isn't exactly a word most investors consider synonymous with the euro zone's distressed peripheral assets.

Still, Greylock Capital Management's Diego Ferro invokes it to describe Greece's new bonds, which constitute part of his hedge fund's holdings.

"I do think the new Greek securities are much better than the old," the portfolio manager said in an interview. Ferro is undaunted by the inversion of Greece's yield curve, a recessionary spiral and widespread fears that the Hellenic Republic may either default again or exit the single currency--events he says are unlikely.

"We see Europe as a continent in crisis. It will take time to make adjustments," but the euro-area concept is likely to survive, Ferro said.

Ferro is one of the private-creditor negotiators who joined a steering committee convened by the Institute of International Finance, which over months of torturous marathon talks with Greek and European officials hashed out a EUR206 billion ($272.7 billion) debt-restructuring agreement.

Despite unabated concerns about Greece's long-term solvency, the massive bond exchange has resulted in higher-quality securities, Ferro said. "The levels at which the new Greek debt are trading are attractive," he said, with 20% yields, a low coupon that holds down debt service costs, and a long maturity date all serving as bonuses for the cash-strapped country.

The deal was a linchpin of Greece's efforts to secure an international bailout package. This week, Greece announced EUR199 billion of its debt has been restructured, representing 96.9% of the total, with a small group of holdouts refusing to participate in the swap.

The new bonds are an improvement on their predecessors for several reasons, Ferro said. For one, they are issued under U.K. law, which inoculates them from unilateral actions like a retroactive collective-action clause, the maneuver Greece used to force most recalcitrant bondholders to accept a debt write-down.

Additionally, the new debt is part of a cofinancing structure with the European Financial Stability Facility, which by Ferro's interpretation means payments are shared with the EFSF in the event of a Greek payment shortfall. "It creates a similar status to Greek debt investors as the EFSF," he said.

Ferro's views, however, are in a distinct minority. Michael Cirami, a portfolio manager in the global fixed-income group for Eaton Vance, which holds $197.2 billion in assets, is one of many investors who think another restructuring is all but a certainty. He holds German bunds, still considered the euro zone's safest government bonds.

"It's important to keep in mind that there hasn't been much of a haircut with respect to Greece's debt position," Cirami said, referring to the reduction in the country's future obligations. "When [Greece] returns to the market, more restructuring will have to take place. Who will take the brunt of that remains to be seen."

Ferro acknowledged Greece's ratio of debt to gross domestic product--more than 163%--is a "completely nonsensical number" given its uncompetitive economy. The lack of economic convergence, he said, means "Europe is in trouble. It borrowed too much and became too comfortable."

Yet with pitched debates about austerity and rising public disapproval, euro-zone politicians "understand the gravity of the situation," he said.

"You have to cut them some slack. It's important to judge their actions--watch what they do and not what they say," Ferro said. The political upheaval in the Netherlands and France "underscore a realization of what the problem is, and how to tackle it."

-By Javier E. David, Dow Jones Newswires; 212-416-4564; javier.david@dowjones.com

(END) Dow Jones Newswires

April 26, 2012 14:23 ET (18:23 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.