Presenting the Greek government’s full (and final?) offer on its voluntary restructuring of Greek bonds.
Click the text for the complete document:
It’s a call to global finance ministers to determine who holds Greek bonds in their jurisdictions, as well as a detailed description of the swap’s terms (including the famous four options, two par which cut coupons and two which discount principal, all of which have varying forms of collateralisation, and which all amount to a 21 per cent net present value reduction from face value).
Note the warning in the last paragraph that Greece might not go ahead with the offer if it fails to achieve sufficient participation. A negotiating trick straight out of the Uruguayan playbook…
FT Alphaville is still picking through the terms of the options, but there are a couple of details that we find very interesting. In short, whatever option is chosen, the new swapped bonds will be governed under English law, and will also insert both a negative pledge clause and a collective action clause:
We think this is because foreign law bonds being tendered into the exchange already have these provisions (apart from CACs) and it’s critical to participation that they are maintained. At the same time, this also shows that the negative pledge clause wasn’t regarded as “boilerplate”. It clearly mattered beforehand. Interesting to know, given that these clauses are the main reason why the Finland cash collateral deal continues to threaten a Greek default.
(Update – although there are signs the Finns have abandoned the current deal. Whether all collateral is off the table isn’t confirmed – the German finance minister said states were still seeking collateral from Greece, at pixel time.) (Update on the update – Finnish saying that collateral remains an “absolute precondition”, denying that earlier report about abandoning the deal. See what we mean?)
Further down the road, might it also leave the holders of swapped bonds relatively more protected than non-participating investors? Swapping from a Greek law bond to an English law new bond will insulate holders from (for example) the involuntary alteration of Greek law bonds’ terms by an act of the Greek parliament. Cross-default clauses are also an interesting addition. Basically, there is more credit enhancement in this offer than in the original IIF deal.
We’ll go into the maths of the options more fully later on, but in concluding we would note that Option 4, a discount bond option which has proved especially troublesome to value, contains some intriguing provisions on credit default swap triggers, and has been limited to bonds maturing before 2014…
Related links:
Finance ministers move to save Greek bailout – FT
Bondholders will sue every sovereign – FT Alphaville