Greek restructuring and Rollover Plans, Partial Default is here
Greek has ‘Defaulted Partially’ and so here is the ‘partial restructuring and rollovers’, of Greek debt, in which private financial institutions represented by IIF will help financing Greece with 53 Billion EURO. Plan was rollout and was excepted by IIF institutions. Complete report on Greek financing released by IIF can be found HERE. It says:
As explained in the Financing Offer, investors will be offered four new instruments in addition to the opportunity to participate in a debt buyback program to be established by the Greek government in consultation with the official sector. The instruments are structured to attract voluntarily a wide range of investors. The four instruments involve:
- A Par Bond Exchange into a 30 year instrument
- A Par Bond offer involving rolling-over maturing Greek government bonds into 30 year instruments
- A Discount Bond Exchange into a 30 year instrument
- A Discount Bond Exchange into a 15 year instrument
For instruments, 1, 2 and 3 the principal is fully collateralized by 30 year zero coupon AAA Bonds. For instrument 4, the principal is partially collateralized through funds held in an escrow account. All of the debt servicing risk on these new instruments, however, remains full Greek risk.
After Complete review of the report, I found three major instruments that are being introduced which look more or less same like Brady Pact of 1980s:
- You can extend your maturities out to 30 years, and accept a modest coupon of 4.5%; in return, your principal will be guaranteed with an embedded zero-coupon bond from an impeccable triple-A-rated EU institution, probably the EFSF.
- You can extend your maturities out to 30 years, take a 20% haircut, and get a higher coupon of 6.42%; again, the principal is guaranteed with zero-coupon collateral.
- You can extend your maturities out to 15 years, take a 20% haircut, get a coupon of 5.9%, and have only a partial principal guarantee through funds held in an escrow account.
These restructuring and rollovers may give Greece some air to breathe but restructuring can’t work for eternity. Greece will have to find fundamental ways to reduce its debt which include privatization and balancing the deficits. We have seen in the case of Latin American Crisis that countries can save themselves for few years but after sometime they are ready to default again until they change fundamentally. Argentina is a fine example to this.
Here is the list of financial institutions under IIF who all have agreed to the restructuring process.