You’re just not cool these days if you aren’t operating some sort of circular mechanism to reduce your debt levels in the eyes of the outside world. And it appears that Greece, sick of being bullied by the circular crew, is looking to get in on the act.
We’re talking about the Greek debt buyback, which should be completed on Friday if deadline talk is to be believed. Read more
The IMF’s desired target of a 120 per cent debt-to-GDP ratio by 2020 has been replaced by 124 per cent by the same date — thanks in large part to official creditors taking a lower interest rate on repayments from the original bailout. A lot also seems to hinge on the Greek debt ‘buyback boondoggle’, which is now well and truly on the table. Read more
We’re feeling very nostalgic. From the WSJ:
Euro-zone countries are considering a proposal that would see Greece cut its debt by buying back bonds held by private creditors at a discount.
The exercise–one of a number of options being studied–could persuade the International Monetary Fund to sign off on a loan payment desperately needed by the debt-laden country and keep Greece’s bailout on track for the medium term, two officials with direct knowledge of the discussions said Thursday.
European leaders have agreed a new €109bn bail-out of Greece under which private bondholders will be called on to participate for the first time, contributing a target of a further €37bn. The FT says deal will almost certainly lead to the first default on eurozone bonds since the creation of the single currency. In addition to the €109bn in new loans from international lenders, the agreement includes a commitment from Europe’s leaders to support Athens until it is able to return to the financial markets – a potentially unlimited guarantee that could see European taxpayers fund Greece for years. But the contribution by private creditors will only be known when bondholders decide if they will take part in the proposed programme. Bondholders will be given four options – three forms of debt exchange and one rollover plan – with different durations and interest rates. On top of that, an additional €12.6bn is expected to come in commitments from bond owners to sell their holdings at a reduced price as part of a bond buy-back programme. Also in the FT, officials stressed such a programme would not be used in other countries. Asian markets rose sharply on news of the agreement.
Buyback — boondoggle! It’s a noun phrase we’re used to here on FT Alphaville, following this seminal 1989 paper, by Messrs Rogoff and Bulow.
The boondoggle is the tendency for market purchases of distressed sovereign debt to subsidise creditors, by offering them a way out at greater recompense than if they were recovering on defaulted debt. Read more
Greek prime minister George Papandreou said the eurozone and International Monetary Fund must quickly approve a second bailout for his country to avoid its economic reform plans collapsing. Reuters says Mr Papandreou told FT Deutschland, ”If we don’t get a decision soon supporting the second Greek programme so that the country can begin its far-reaching reforms, the programme itself could be held up.” The prime minister said he was open to proposals being discussed in the eurozone about potentially using the European Financial Stability Facility for Greece to buy back its debt. Meanwhile the FT reports the IMF on Wednesday warned that the Greek sovereign debt burden risked spiralling out of control and that it would be “appropriate” for private bondholders to share in any restructuring.
Only in the eurozone can you make sovereign defaults “partial” and without any effects on actual debt burdens…
We’d emphasise that last point for Greece, but we’re also quite interested again in what the CDS market does here, despite its small size in relation to Greece and general lack of priority. Read more
Amid the steaming wreckage of the Greek bailout on Thursday — a little Goldman hopefulness on what to do next. Not a rollover. Not a restructuring, technically.
A ‘managed deleveraging’. Read more
Not quite a Greek restructuring or re-profiling, but a big warning sign that we’re now very close.
First a little background… Read more