samedi 25 février 2012

Greece Launches Debt Swap

ATHENS—Greece on Friday formally launched a bond-swap offer to private-sector creditors, kicking off a €100 billion ($134.7 billion) debt write-down plan that is part of a fresh multibillion-euro rescue agreement Athens is seeking from its international creditors.

The Finance Ministry said that at least 90% of the face amount of all bonds selected to participate in the debt deal must be exchanged in order for it to go forward. However, Greece—along with its European partners—would consider proceeding with an alternative bond swap if only 75% of bondholders participate, without necessarily forcing holdouts to sign on to the deal.

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Greek Prime Minister Lucas Papademos arrives at Friday's cabinet meeting.

Earlier this week, euro-zone finance ministers approved a fresh €130 billion bailout for Greece and the debt-restructuring program. The two deals are linked: Greece's European partners demanded that the country proceed with a debt restructuring before they would approve the new loan.

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Under the terms of the debt deal, Greece's private-sector creditors will waive 53.5% of the principal on the bonds they hold by swapping their old bonds with new ones, worth less than half the face value of the original bonds and carrying lower coupons. The deal aims to erase as much as €107 billion from Greece's sovereign-debt burden and bring its debt ratio down to a more sustainable 120.5% of gross domestic product by 2020, from more than 165% now.

The ministry, in its statement, noted that "Unless bonds representing at least 90% of the aggregate face amount of all bonds selected to participate in the PSI [private sector initiative] are validly tendered for exchange, the Republic will not be required to settle any of the exchanges." It added that "If at least 75%, but less than 90% of the aggregate face amount of all bonds selected to participate in PSI are validly tendered for exchange, the Republic, in consultation with its official sector creditors, may proceed to exchange the tendered bonds without putting any of the proposed amendments into effect," it added.

European Union leaders will meet March 1-2 at a summit to give the final nod to the deal.

Greece's Cabinet signed off on the deal earlier Friday. "The cabinet has approved the procedure, the terms, and offer relating to the [debt deal]," said a senior government official present in the meeting.

To secure the new loan, Greek lawmakers also are scrambling to pass further cutbacks—ranging from pension cuts to lowering the minimum wage to reductions in defense and health-care spending—by the middle of next week to meet the demands of the country's European partners and the International Monetary Fund.

Over the next few weeks, Greece's government must complete some 80 new measures to fulfill those demands, including many that must be completed by March 1, said a government official.

"In general, there is optimism that there will be very high participation" in the debt swap, the official said.

By March 9, according to a government official, Greece will determine whether the take-up rate from investors is enough for the debt deal to proceed. If so, the actual exchange of the new bonds for the old will take place March 12.

The deal also calls for bond holders to accept retroactive collective-action clauses, or CACs, aimed at forcing losses on holdouts who may resist what is being billed as a "voluntary" debt restructuring.

Depending on the participation rate, Greece will then decide whether to activate the CACs to rope in any holdouts—a move that risks triggering credit default swaps, or CDS, on Greek government bonds.

CDS are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.

The new bonds issued by Greece will be governed by English law rather than Greek law because Greek lawmakers won't be able to review the legal terms of the deal. If the bonds were governed by Greek law, it would be easier for the Greek legislature to pass a law that simply amends the bonds.

Write to Alkman Granitsas at, Stelios Bouras at and Nektaria Stamouli at

debt restructuring online, European partners, European partners, face amount, face amount, ATHENS—Greece, Prime Minister Lucas Papademos

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