Cyprus, the small economy with the relatively massive bank recapitalisation problem, may have some kind of good news in its quest for a bailout: Germany might not be so wedded to blocking or delaying said bailout after all.
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.
Clearly, the sense that Greece has stepped away from the brink of getting kicked out of the eurozone is the key driver, coupled with expectations that Brussels will give Athens a loan repayment extension.
Recent comments by eurozone officials quoted by Reuters that Athens could use funds from privatisations of state-owned assets to retire debt also don’t hurt:
“The privatisation process is finally kicking in, the structure is ready,” the official said. “You could expect a few billion euros from privatisation to buy back debt. This could happen relatively quickly.”
The debt swap plan seems to be working, then, but we wonder for how much longer… Read more
In an effort to secure a return of Ireland to the markets, sources say the Troika is considering adjusting the terms of the country’s repayments. Instead of paying back EU loans over an average of 15 years it is considering extending them to 30 years. Read more
Cyprus is apparently preparing a bailout for its second biggest bank which could come in at near 10 per cent of GDP.
This is from the Cypriot press (poorly Google-translated – sorry – and now apparently removed and replaced by a much blander article; although Reuters looks like it saw the same thing so we are not going mad): Read more
Shhhh! Be very, very quiet. The Isda Determinations Committee has been meeting to decide whether there’s been a restructuring Credit Event that would trigger payouts on CDS referencing Greece and we don’t want to spook them.
The Governing Council of the European Central Bank (ECB) has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations. This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer. Read more
So the deal is in, and it combines bigger private sector “voluntary” haircuts (53.5 per cent of face value, as opposed to 50 per cent agreed in October) with the ECB passing the profits from its Greek bondholdings onto the national central banks, who will then pass it onto Greece. Together these measures are expected to enable Greece to reach a debt/GDP ratio of 120.5 per cent by 2020. There is also mention of enhanced — and permanent — monitoring.
Reuters quotes two sources saying a deal is done with a nominal PSI haircut of 53.5 per cent, or more than the 70 per cent net present value previously discussed:
Another official confirmed that the financing would total 130 billion euros with the aim of reducing Greece’s debts from around 160 percent of GDP now to 121 percent by 2020, but cautioned that drafting of the deal was only just starting. Read more
The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome… Read more
“If the level of Greece’s privately held debt is not sufficiently renegotiated, then public creditors, holders of Greek debt, will also have to participate in the financial effort,” Lagarde told journalists in Paris. Read more
Eurozone finance ministers will on Monday decide what terms they will accept on a Greek debt restructuring after talks going into the weekend failed to reach agreement, reports Reuters. The mood in Athens was tense on Sunday night, says the FT, after it became clear that an outline agreement on cutting Greece’s debt by €100bn could not be reached ahead of Monday’s meeting of the finance ministers in Brussels. Private owners of Greek debt have made their “maximum” offer for the losses they are willing to accept, the bondholders’ lead negotiator has said, implying that any further demands could kill off a “voluntary” deal and trigger a default. Charles Dallara, managing director of the Institute of International Finance, said he remained “hopeful and quite confident” the two sides could reach a deal that would prevent a full-scale Greek default when a €14.4bn bond comes due on March 20. The NY Times says Germany and the IMF have continued to insist that the longer-term bonds that would replace the current securities must carry yields in the low 3 per cent range, citing unnamed officials involved in the negotiations on Sunday, but Mr Dallara told Greece’s Antenna network that 3.8 to 4 per cent was the best deal that could be done in a voluntary haircut arrangement. Meanwhile, there was speculation about the circumstances surrounding Mr Dallara’s departure from Athens early on Saturday, says Greece’s Ekathimerini newspaper. The IIF said that Mr Dallara’s departure had been planned and insisted that there had been no breakdown in talks on the debt swap, dubbed PSI for private sector involvement. But the newspaper says Antenna quoted sources as saying that the IIF chief had met with officials of the French and German finance ministries at the Paris Club on Saturday night for a “secret dinner” where the Greek debt swap issue was allegedly discussed.
It appears that the “voluntary” Greek bond swap might finally come to an end.
Time then to spare a thought for the derivative that drove the need to draft the damn thing so gently in the first place. Ladies and gentlemen, FT Alphaville gives you the incredible shrinking market for credit default swap contracts written on Greece! Read more
The Greek government on Wednesday appeared to move closer to a deal with private bondholders that would avert a threatened default by Athens. Talks with holders of close to €200bn of Greek debt broke down last week, after some eurozone officials called for a sharply lower coupon, or interest payment, on new bonds, the FT reports. The latest proposal called for a coupon starting at about 3 per cent and rising to 4.5 per cent as the bond approached maturity, one banker said. The deal would amount to a 68 per cent loss for bondholders in net present value terms, according to people familiar with the talks. Greece wants to wrap up at least the outline of a deal on the bond swap ahead of a meeting of eurozone finance ministers on January 23. If the swap doesn’t go through, Greece may not be able to make a €14.5bn debt repayment on March 20, or may have to rush through legislation to force recalcitrant bondholders to accept its current proposals – a move that would trigger credit default swaps written on Greek debt, according to experts. Reuters reports that Greek officials have been using the threat of such legislation to pressure hedge funds, and other parties, into participating in the swap.
Greece’s international creditors are considering an appeal to the French and German leaders to break a deadlock in negotiations over the size of the losses to be taken by banks and other bondholders as part of a €100bn deal seen as crucial to bringing the country’s debt under control, says the FT. This follows a breakdown in talks between banks and official investors on Friday. Citing people close to the negotiations, the newspaper said much of the agreement had been in place for several weeks, but that a final deal had stalled over the coupon payment for new 30-year bonds to be issued by the Greek state. Greek debt managers had agreed with bondholders on a coupon just below 5 per cent but creditors last week proposed a much lower interest rate. Germany has proposed a 2-3 per cent coupon that would increase bondholders’ losses from 60 per cent to more than 80 per cent in net present value terms. Charles Dallara, the IIF’s managing director, told the FT on Sunday that he believed an agreement in principle needed to be completed by the end of this week if the restructuring deal was to be finalised in time for a €14.4bn Greek bond redemption due on March 20. “[Ms Merkel and Mr Sarkozy] and all the European heads of state said they wanted a deal with a 50 per cent [haircut] and a voluntary agreement,” Mr Dallara said. “Some of their own collaborators are not following that decision.” Greece’s finance minister, Evangelos Venizelos, says talks with the IIF will recommence on Wednesday, reports the WSJ.