logo
  Join        Login             Stock Quote

The Great Greek Swap Meet

 March 06, 2012 10:57 AM


Greece's private-sector debt restructuring deal (officially dubbed "Private Sector Involvement," or PSI) is in full swing, and EU officials are hotly awaiting the outcome. It's the last big hurdle between Greece and Bailout 2.0, and Greece has till Thursday evening to secure participants.

The PSI isn't the easiest sell. Banks are asked to help Greece axe around €100 billion from its outstanding debt by swapping existing Greek sovereign holdings for new 30-year Greek bonds and 2-year EFSF notes—each with a far lower face value. Respectively, the new debt will represent 31.5% and 15% of the old bonds' face value—a 53.5% principal reduction in total. The interest paid will be 2.0% through 2015, 3.0% through 2021 and 4.3% thereafter. Participants will also receive detachable GDP-linked securities with a notional amount equal to the new bonds' face value. Beginning 2015, these will provide annual payments up to 1% of the notional value if GDP exceeds a defined threshold and real Greek GDP growth exceeds targets (which aren't yet determined).

[Related -On Being A Forced Seller in a Panic]

The large haircut may seem unappetizing, but banks are pragmatic—they understand an orderly restructuring is preferable to a messy default, in which case they could be hit with even greater losses. Plus, the new bonds will be issued under English law, meaning the Greek government can't retroactively change the terms—abating one of the risks banks would face by holding existing Greek sovereigns. In short, there's plenty of incentive to participate, and 12 large European banks have already reportedly signed up—banks with face-value Greek sovereign holdings of at least €40 billion as of year-end 2011.

[Related -ECB's Quantitative Easing - QuitE Wrong]

That's a good start, but Greece still needs more participants. If the participation rate is between 67% and 75% by March 8, Greece will automatically activate a retroactive Collective Action Clause (CAC), imposing the PSI on all private-sector Greek debt holders. If participation exceeds 75% but falls short of 90%, Greece and its European brethren may elect to activate the CACs. A 90% participation rate was factored into the second bailout's €130 billion size, and lower participation may mean larger bailout contributions from the IMF and EU nations—something most nations would rather avoid.


Next Page >>12
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageOn Being A Forced Seller in a Panic

No one wants to be a forced seller in a panic. So how does anyone get into that situation?  Two things: bad read on...

article imageECB's Quantitative Easing - QuitE Wrong

The eurozone has been doing fine without the ECB’s read on...

article imageCan You Invest Better Than Warren Buffett

Warren Buffett's investing strategy is simple: find companies worth investing in read on...

article imageMild Rebound In Housing Market

Expectations for a snapback in home construction from the winter lull were dampened somewhat in the latest read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Can You Invest Better Than Warren Buffett
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.