Still no PSI Deal - Despite the Friday Happy talk that the PSI Deal was imminent !

Loose ends delay bond swap deal

by Dimitris Yannopoulos 20 Jan 2012

(File photo) Athens has agreed the broad outlines of a bond swap deal with its private creditors but crucial details remained to be finalised later in the evening on January 20, sources close to the private sector involvement (PSI) talks told the Athens News.   Following the last round of negotiations early in the afternoon between Prime Minister Lucas Papademos and Charles Dallara, the head of the bankers' lobby, the International Institute of Finance (IIF), the sources said the two sides had agreed on the interest rate, maturity and legal jurisdiction of the new bonds that will cut 100bn euros from a total of privately held debt worth 205bn euros.   "The atmosphere of the talks is good, they are continuing today and we hope they will be concluded very soon," government spokesman Pantelis Kapsis told private Radio 9. "This is very important for the sustainability of the national debt and our ability to handle the debt."   The average coupon rate of the new bonds would be 4.25 percent in an ascending structure of time intervals over a 30-year maturity period, starting with a 3.5 percent coupon for the 2012-2014 period, 4 percent for the 2015-2020 period and 4.6 percent for the period after 2020.   In real terms, the losses incurred by investors on the net present value (NPV) of the new bonds would amount to 68 percent of the face value of the old ones, assuming a current discount rate of 10 percent. The NPV loss or "effective haircut" is used by investors to estimate the opportunity cost of selling rather than keeping the new bonds at the time of the bond swap. But two additional factors are meant to raise the "attractiveness" or the real value of the new bonds compared to the old ones, the sources said. Firstly, Papademos has reportedly agreed to change the jurisdiction of the new bonds from Greek law - which covers the bulk of privately held Greek bonds (over 190bn euros) - into English law.   English law overwhelmingly favours the bondholders rather than the debtor in any claim arising from a possible future credit crisis, haircut or default of Greece, while at the same time ensuring that the bonds will remain denominated in the currency in which they are issued (euro) in case the country is forced to exit the eurozone or the currency union collapses.   Secondly, the IIF has requested from Greece's EU-IMF creditors that the bond swap will exchange every 100 euros of old bonds with 35 euros of new bonds and 15 euros of top-rated EFSF bonds with two-year maturity.   The EU had earmarked 30bn euros out of the 130bn euro new bailout package for a cash payment of 15 euros rather than the issuance of an equivalent value of EFSF bonds.   The latter requires approval from a euro working group teleconference of eurozone finance ministers that was scheduled for 17.30 Greek time on January 20.   The Eurogroup must also decide on an IIF request for additional credit enhancements for holders of 14.5bn euros worth of Greek bonds maturing on March 20 in order for them to have an incentive to participate in the deal voluntarily.