bond swap

Greece Sets Conditions on Debt Rollover

ATHENS — Greece said Friday it might only go ahead with a bond swap plan that is a critical part of its second bailout if at least 90 percent of private creditors who hold government bonds participate.

The July 21 bailout plan would see banks and other financial institutions give Greece easier repayment terms on its bonds.

However, in return, Greece has to fund an expensive collateral arrangement, which will secure the remaining value of the bonds and would cost the country about €42 billion, or $60 billion, until 2020.

The Athens Stock Exchange on Friday posted extracts of a letter sent by the government to foreign finance ministers saying that Greece “shall not be obliged to proceed” unless it could get at least 90 percent of its eligible bonds swapped or rolled over. It also said 90 percent of that must be bonds maturing between June 30, 2011, and Aug. 31, 2014.

“If these thresholds are not met, Greece shall not proceed with any portion of the transaction” if it determines — along with international partners such as the eurozone and International Monetary Fund — that the total contribution of the private sector is insufficient for the July 21 agreement to work, the letter said.

It said the participation of the private sector needed to have a positive impact on its debt sustainability, or its ability to repay its overall debt load of some €340 billion.

Greece had previously said it was seeking 90 percent participation, or €135 billion, but the figure had been set as a target rather than a condition.

The letter was sent to foreign finance ministers asking for help in determining which institutions in their countries hold Greek bonds maturing through the end of 2020.

According to initial estimates, the bond swaps and rollovers were meant to save the Greek government some €37 billion by 2014, reaching a total of €54 billion by 2020. However, much of those savings would be eaten up by the cost of the collateral, so a lower participation could quickly eliminate the benefits.

The Institute of International Finance, a financial sector lobbying group that has been leading the discussions on private sector involvement with the Greek government, has said that the estimates are based on a participation of 90 percent of Greek bondholders.

However, in recent weeks, speculation has mounted that Greece may fall short of that target.

Amadeu Altafaj-Tardio, a spokesman for the European Commission, the European Union executive, said discussions with Greece’s private creditors were “ongoing.”

“We have no reason to think that the figure will be far from” the 90 percent estimate, he said.

Debt-strapped Greece has been relying on rescue loans from euro zone countries and the International Monetary Fund since last year. It was granted a first, €110 billion bailout in May 2010 but still needed to get a second rescue deal worth a further €109 billion last month. The €109 billion figure is dependent on a strong participation of the private sector.

In return for the rescue loans, the country has pledged to tame its budget deficit, aiming for a target of 7.5 percent of gross domestic product this year from 10.5 percent in 2010. It has imposed a series of austerity measures, including higher taxes and cuts to public sector pay and other spending, and introduced more measures this year.

The talks with banks and other financial companies is just one of the aspects of the July 21 deal that is running into potential troubles.

Euro zone states, which will be funding the majority of the second €109 billion bailout, are also locked in talks about a Finnish demand to get collateral to secure its contribution to the bailout.

Senior officials from euro zone finance ministries were discussing the issue Friday in the hopes of finding a solution that would not endanger the overall bailout deal. Four other euro zone countries have demanded equal treatment if Finland is given collateral

Speaking in parliament, the Greek finance minister, Evangelos Venizelos, said he was confident a solution would be found, and said the calls for equal treatment by other countries “doesn’t turn against Greece. It turns in favor of the unity of Europe.”

Article source: http://feeds.nytimes.com/click.phdo?i=a06d1e996630421d8068d3ea6545e4ef

Germany Proposes 7-Year Extension on Greek Bonds

Setting itself firmly at odds with the European Central Bank, the German finance ministry has proposed extending maturities on Greek bonds by seven years, insisting that private investors must share the burden of any fresh financial aid to Greece.

The comments were made in a letter, dated Monday and released Wednesday, from the finance minister, Wolfgang Schäuble, to his European counterparts, the International Monetary Fund and the E.C.B.

“Any additional financial support for Greece has to involve a fair burden sharing between taxpayers and private investors and has to help foster the Greek debt sustainability,” he said in the letter.

He added that any deal among European finance ministers and the I.M.F. at a meeting on June 20 has to “lead to a quantified and substantial contribution of bondholders to the support effort,” and “can best be reached through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years.”

The position is likely to frustrate the E.C.B., which has been positioning itself against moves to force private bondholders to book partial losses on their holdings.

According to analysts, the bank fears that credit agencies might see this as a default, and thus issue ratings downgrades. That in turn would mean that the E.C.B. would not be able to accept Athens’ debt as collateral for fresh loans, thus hampering attempts to provide liquidity to ailing Greek banks, which have become dependent on funds from Frankfurt.

The central bank also appears to fear possible spillover contagion in the European banking sector in the event of a Greek default.

In the letter, Mr. Schäuble said a return by Greece to capital markets next year was “unrealistic” and that the current international support programs for Athens were “insufficient to cover Greece’s financial needs over the program period.” He said Greece would need new funding in place by mid-July.

Analysts at Barclays Capital said in a research note Wednesday that “the concept of private sector burden sharing is receiving growing attention as a way of achieving political consent in countries such as Germany and Finland for a new Greek bailout package.”

They added that the concept has “yet to be fleshed out.”

The E.C.B. they said, would rather encourage private sector holders to re-lend the proceeds of redeeming Greek debt back to Athens on the same terms in what is called a “voluntary rollover,” which would presumably not trigger a default.

The letter has been disseminated just before Mr. Schäuble is expected to discuss the Greek situation with German lawmakers, some of whom have been demanding private sector involvement in any Greek debt restructuring.

A spokesman for the Finance Ministry in Berlin declined to comment on the letter and said that there was no fixed time scheduled for the minister’s meeting with lawmakers.

Article source: http://www.nytimes.com/2011/06/09/business/global/09bailout.html?partner=rss&emc=rss

Greece Sets Conditions on Debt Rollover

Germany Proposes 7-Year Extension on Greek Bonds

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