Table of Contents
1. Anticipated Liability Management Transaction
2. New Bonds
3. Defeasance Assets
4. Questions Specific to the Options
1. Anticipated Liability Management Transaction 1.1. When is the liability management transaction expected to take place?
No date has yet been determined for the anticipated liability management transaction, though all intentions are for this to occur in the near-term and possibly in October 2011, subject to all necessary authorisations.
1.2. Which bonds will be included in the anticipated liability management transaction?
A list of all GGBs that Greece may elect to include in the liability management transaction is available under the “Documents” section of this website. This list includes the majority of outstanding GGBs and International Bonds issued by the Hellenic Republic and bonds issued by Hellenic Railways Organization, all with maturity dates through December 2020. Note that there are certain exclusions within this range. Treasury Bills issued by the Hellenic Republic will be excluded.
1.3. Why does the exchange offer not apply to all of the outstanding GGBs?
This list includes the majority of outstanding GGBs, and International Bonds issued by the Hellenic Republic and Hellenic Railways Organization bonds, all with maturity dates through December 2020. In order to ensure the sustainability of Greece's public debt profile, the liability management transaction is likely to focus on obligations with earlier maturities, i.e. those maturing through December 2020. Within this range of securities, certain issues have been excluded, e.g. those issues initially placed with Greek banks for purposes of recapitalization.
1.4. If the liability management transaction is launched can I participate with my current holdings of eligible GGBs?
Holders will be invited to participate with all their holdings of eligible GGBs as of June 30, 2011
1.5. What action should I take, if I have sold all or part of the holdings I had as of June 30, 2011?
When choosing Option 1, 3 or 4, holders would be expected to deliver the same eligible GGBs in nominal amount into the exchange as per their holdings on June 30, 2011. Alternatively, holders may select Option 2 (Committed Financing Facility - cash advance option) for the total nominal of eligible GGBs they no longer own, as such option does not require the delivery of eligible GGBs.
1.6. Can eligible GGBs acquired post June 30, 2011 be included in the exchange?
Eligible GGBs acquired post June 30, 2011 representing an increase in the investor's holdings in a specific bond, may be included in the liability management transaction and separately reported to your regulator. However, for the purposes of the current enquiry you are requested to report your total holdings as of June 30, 2011.
1.7. What options can investors choose?
The Private Sector Initiative contemplates that investors can choose to participate by selecting one or more of the following four options:
Option 1: Exchange into a New 30 Year Instrument at Par (New Par Bonds)
Option 2: Commit to provide financing (in exchange for new instruments substantially identical to the New Par Bonds) to Greece at the beginning of the calendar quarter in which the eligible GGBs in respect of which this Option is selected, mature
Option 3: Exchange into 30 Year Instrument at Discount (New Discount Bonds)
Option 4: Exchange into New 15-Yr Average Life Bonds at Discount (New Discount Amortising Bonds)
1.8. Can I split my holdings of eligible GGBs and choose different options for each of the parts?
Yes, holders can choose more than one option. However, holders must make an election for their entire holding of eligible GGBs as reported on June 30, 2011.
1.9. Will participation in any of the options be restricted? If so, what happens if I elect that option and my participation gets prorated?
At this stage It is anticipated that Option 4 will only be made available for GGBs maturing prior to 1 January 2014, and is expected to be limited to a maximum of 25% of the aggregate principal amount, or (where applicable) the Euro equivalent of the principal amount, of all GGBs participating in the liability management transaction or the committed financing facility. In the event of an oversubscription of an option that is subject to a “cap”, bonds will be reallocated to such remaining alternative as holders may have indicated when making their first choice.
1.10. What would happen if the liability management transaction fails to reach the critical mass threshold of 90%?
Greece shall not be obliged to proceed with any portion of the transaction unless holders of eligible GGBs tender, in response to Greece's eventual Invitation to Tender, eligible GGBs having a principal amount equal to not less than 90% of all eligible GGBs, including 90% of that portion of the eligible GGBs maturing during the period from June 30, 2011 through August 31, 2014. If these thresholds (or either of them) are not met, Greece shall not proceed with any portion of the transaction if it determines, in consultation with the official sector, that the total contribution of private sector creditors towards the financing needs of Greece and Greece's debt sustainability resulting from this transaction is insufficient to permit the official sector to support the new multi-year adjustment program for Greece announced on July 21, 2011
1.11. In the anticipated liability management transaction, will accrued interest be paid or rolled into the New Bonds?
Accrued interest is expected to be paid in cash within the context of the anticipated liability management transaction
1.12. Will the anticipated liability management transaction be open to US holders?
Securities being offered in the U.S. will not be registered under the Securities Act of 1933, therefore the new securities will only be available to certain holders who would normally qualify under a Rule 144A offering, namely qualified institutional buyers that are also “qualified purchasers” (under the Investment Company Act).
1.13. Does Greece intend to launch a cash offer for its GGBs too?
A Greek Debt Buyback Facility was referenced in the statement on July 21, 2011 by the Heads of State and Government of the Eurozone Area and EU along with the IIF (Institute of International Finance). Such an offer is being separately contemplated.
1.14. If Greece is to launch a separate cash offer, what will be its timing?
A cash buyback may take place in parallel with the liability management transaction currently under consideration.
1.15. Will a possible cash offer also include the eligible GGBs targeted in the exchange offer?
A cash buyback may include eligible GGBs and International Bonds issued by the Hellenic Republic and Hellenic Railways Organization bonds as well as certain bonds that will not be eligible to participate in the anticipated liability management transaction.
1.16. If Greece is to launch a cash offer, at what prices will it propose to buy back bonds?
A decision on the cash offer or the buy back method has not yet been made.
1.17. How should my holdings be reported to my regulator?
If your parent company is located within the European Union, ONLY the parent company of the regulated institution(s) is requested to respond to its Regulator on behalf of all consolidated and unconsolidated, regulated and unregulated entities forming part of your corporate group.
If your parent company is NOT located within the European Union, then your institution is requested to respond to your Regulator on behalf of your institution and all unregulated subsidiaries unless another institution in your group is responding to another Regulator in relation to such unregulated subsidiaries.
1.18. What is the deadline for responding to my regulator with my holdings?
Holders are requested to respond to their regulator as soon as practicable but in any event not later than 5.00 p.m. Central European Time on 9 September 2011.
1.19. Can a private investor, non institutional participate into the PSI; E.g. An investor with eligible GGBs worth, say, 1mn euros; Were is this actually written on the documents; thx in advance.
Subject to any applicable securities law restrictions, non-institutional holders will be invited to participate in the transaction.
1.20. What's the minimum size should we hold to be considered as "private volonteer"?
Subject to any applicable securities law restrictions, there is no minimum size of holdings for participation in the private sector initiative.
1.21. Is is possible to tender only a fraction of GGB's held as of June 2011, keeping the remaining as it is?
It is anticipated that each holder will be invited to participate with its entire holding of eligible GGBs as at June 30, 2011.
1.22. What is the current rate of participation up to now?
Currently no public liability management transaction has been launched, therefore there is no rate of participation. The Letter of Inquiry process currently underway is an information gathering process in order to judge regulated investor interest in the potential transaction and its anticipated options.
1.23. Will bond holders who will not participate be penalized in any way?
Bondholders who do not participate in the anticipated liability management transaction will continue to hold their original securities subject to the terms and conditions of these original securities.
1.24. Will the claim on zero coupon bonds be par as in the other bonds for the purpose of this exchange?
For options 1, 2 and 3, upon a claim and acceleration of the new bonds or loans, holders/lenders will have a claim against the Hellenic Republic equal to notional amount less the accreted value of the defeasance assets, calculated on the date of the acceleration. The defeasance assets will continue to be held under the trust (for the benefit of the bondholders) until the original maturity date of the new bonds.
For option 4, 40% of the principal of the new bonds notional will be defeased by the delivery of defeasance assets, which will be liquidated in the event of certain defined early trigger events and the proceeds paid to holders. Greece will remain obliged to repay the remaining 60% of notional amount.
1.25. Which options are available with regard to those securities which have matured prior to the date of the Anticipated Liability Management Transaction? Obviously those bonds could no longer be subject to a bond exchange - is the securities holder restricted to Option 2 for these securities?
It is anticipated that holders who were holding eligible GGBs on June 30, 2011 but which have since matured, will select Option 2 (Committed Financing Facility) for the total nominal amount of the matured eligible GGBs, as such option does not require the delivery of eligible GGBs, or purchase and deliver in the exchange offer eligible GGBs of any other maturity and select any of the options.
1.26. How can Finland's demand for collateral affect the implementation of the exchange programme? What is the likely outcome of this conflict?
The website is to provide answers to questions relating to the content of the Letter of Inquiry and its annexes. This question is outside the scope of the Q&A in this website.
1.27. 1. Is the offer only referring to Institutionals ? 2. Is the offer only for Government Bonds or also Bond Loans
1. See response to question 1.19
2. This inquiry and the anticipated liability management transaction are limited to Eligible GGBs only and do not extend to debt other than in the form of bonds. The list of Eligible GGBs is contained within the Letter of Inquiry (Annex III) and within the stock exchange announcements issued in connection with the release of the letter
1.28. What happens to holders of the 3.9% 20-Aug 11 bond holder?ISIN: GR0114019442
See response to question 1.25.
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2. New Bonds 2.1. Will the New Bonds be listed on a regulated European Stock Exchange?
Yes, the New Bonds will be listed on a regulated European Stock Exchange.
2.2. Will the New Bonds with trading restrictions also be listed?
Not for as long as they are restricted.
2.3. Will the New Bonds be freely tradable from day one?
Each option contemplates two tranches; one contractually restricting their trading for a period (either 10 years for the New Par and New Discount Bonds or 5 years for the New Discount Amortising Bonds) and the other allowing for trading without contractual restrictions. In each case, restrictions may arise under applicable securities regulations.
2.4. Please elaborate further on these trading restrictions?
It is anticipated that the trading restrictions would require the recipient of the bonds subject to such restrictions ("Restricted Bonds") to retain beneficial ownership of the Restricted Bonds for a period of at least 10 years for New Par and New Discount Bonds or 5 years for the New Discount Amortising Bonds, in each case from their Issue Date. While the exact scope of the trading restrictions will be included in the final Exchange Offer Memorandum, for the avoidance of doubt such restrictions are not intended to preclude use of Restricted Bonds to raise secured financing or form part of any other security provided by an Investor.
2.5. Will the New Bonds be deliverable against CDS contracts?
The issues are complex, and will turn on the final language of the terms and conditions of the bonds. However, the preliminary view is that the defeasance arrangements under the New Bonds generated via Options 1, 2 and 3 make it unlikely that they will constitute Deliverable Obligations for purposes of vanilla CDS transactions written on Greece. It is likely that the New Bonds generated via Option 4 would only be Deliverable Obligations to the extent that they represent direct claims on Greece for the repayment of principal. If a Credit Event occurs with respect to Greece, it is highly likely that questions of deliverability will be considered by the ISDA Determinations Committee, whose conclusions will be binding on the majority of vanilla CDS transactions.
2.6. Will the New Bonds be eligible for repo with the ECB?
It is expected that the New Bonds will be ECB eligible.
2.7. Can New Bonds be transferred to 3rd parties other than ECB as part of the repo or other collateral arrangements?
As mentioned in Q 2.4 above, it is intended that New Bonds will be transferable to 3rd parties as part of secured borrowing arrangements, including repurchase agreements, and other collateral arrangements.
2.8. Will the New Bonds be offered with coupons other than fixed rate coupons?
No.
2.9. How will the interest rates of the new bonds be determined?
Annex II “Description of the Options” of the Luxembourg Stock Exchange Announcement, includes a description as to how it is envisaged that interest rates will be calculated under each option. Separately, under the “Documents” section of this website, you can find a spreadsheet simulation of how the interest rates will be calculated, save for adjustments effected due to the benchmark rates and the issuer of the Defeasance Assets’ spread, being updated on the pricing date of the New Bonds. Then, the coupon rate of the New Bonds will be adjusted in order to achieve a 79% NPV (based on a 9% discount rate for the cashflows from Greece).
2.10. Will the New Bonds be offered in currencies other than Euro?
It is envisaged that the New Bonds will be issued only in Euro.
2.11. If the New Bonds will be issued only in Euros, what exchange rate will be used when exchanging eligible GGBs issued in another currency?
It is envisaged that the exchange rate will be fixed and included in the Exchange Offer Memorandum to be available at launch of the anticipated liability management transaction.
2.12. Will the New Bonds be rated?
We have started discussions with main rating agencies and will provide an update on anticipated rating in due course.
2.13. What are the Events of Default of the New Bonds?
Events of Default are still under discussion but are likely to include a cross default across all New Bonds and a cross acceleration to certain classes of debt. Final terms of the New Bonds offered as part of the anticipated liability management transaction, including the Events of Default, will be included within the Exchange Offer Memorandum to be available at the launch of the offer period.
2.14. Will there be Collective Action Clauses in the New Bonds?
It is expected that CACs will be included and be exercisable either for individual bond issues or in aggregation across all bonds (including bonds to be issued pursuant to the Committed Financing Facility) issued pursuant to the anticipated liability management transaction.
2.15. What will be the law the New Bonds will be issued under?
The New Bonds will be issued under English Law.
2.16. Can the New Bonds be stripped?
The issue of strippability is under discussion and will be confirmed in due course.
2.17. Where can I find the spreadsheet which is referred to under question 2.9? Unfortunately, the document section contains no such sheet.
This spreadsheet has been prepared and will be released in due course.
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3. Defeasance Assets 3.1. What will be the Defeasance Assets for the New Bonds?
For the New Par and the New Discount Bonds: 30-year bonds issued by one or more sovereigns, supranational entities, sovereign agencies and/or sovereign-backed entities which are AAA-rated at the time of issuance and which in aggregate have an initial face value and accrue interest at a rate such that, on the 30th anniversary of the Issue Date of the New Bonds, the redemption amount of the Defeasance Assets will equal the Notional Principal Amount of the New Bonds.
At maturity of the New Par and Discount Bonds, the redemption amount of the New Bond Defeasance Assets will be released from the Trust and delivered to bondholders.
For the New Discount Amortising Bonds: bonds to be issued by (i) sovereigns, supranational entities, sovereign agencies and/or sovereign-backed entities which are AAA-rated at the time of issuance, (ii) pay a floating rate of interest on a quarterly basis at a rate of 3-month EURIBOR plus a spread determined by reference to the market cost of funding for such issuer of Defeasance Bonds; and have the same maturity and amortisation payment schedule as the New Discount Amortising Bonds.
3.2. How does the Defeasance Assets release mechanisms work?
Only Option 4 will have a mechanism for the early release of the Defeasance Assets. In Options 1 to 3, the Defeasance Assets will be held in trust for the holders of those New Bonds until maturity.
3.3. Are there any early release trigger events for the Defeasance Assets?
Yes, but only in Option 4. Option 4 provides for early release of a proportion of the Defeasance Assets following a restructuring or principal default with respect to the New Bonds, and for a full release of the Defeasance Assets following redemption of the New Bonds (whether on final maturity or early acceleration).
3.4. Are Greece's obligations for principal repayment defeased in full by the delivery of the Defeasance Assets?
Under options 1, 2 and 3, Greece’s principal obligations are defeased on the issue date in full. In case of Option 4, the principal obligations up to 40% are defeased on the issue date.
3.5. In the event of a default what is my claim against Greece?
In Options 1 to 3 – Upon a default and acceleration of the New Bonds, holders would have a claim against Greece (the "Default Payment Amount"). The Default Payment Amount will be equal to (i) the Notional Principal Amount, together with all accrued but unpaid interest thereon through the date of acceleration, less (ii) an amount equal to the Defeasance Assets Value (provided that the Default Payment Amount will never be less than zero).
In Option 4 – 60% of the principal amount outstanding of the New Bonds (being, in this case, the original principal amount prior to defeasance less any amortisation amounts previously paid), plus interest accrued to the date of repayment and plus an amount to compensate for any loss of value in the Defeasance Assets as a result of liquidation following an early release.
3.6. Will there be circumstances where the Defeasance Assets would need to be valued and how will this valuation take place?
Yes, in order to calculate the Default Payment Amount under Options 1 to 3. Under these options, the Defeasance Assets Value will be determined by the trustee holding the Defeasance Assets as the accreted value of the Defeasance Assets on the date of the acceleration of the New Bonds. For the avoidance of doubt, the Defeasance Assets will continue to be held until maturity, for the benefit of the bondholders, under the relevant trust.
In Option 4, upon an early release of any Defeasance Assets following certain trigger events, such Defeasance Assets will be liquidated and the proceeds paid to bondholders. If the liquidation value of the Defeasance Assets is less than 100%, holders’ claim on Greece will increase by an amount equal to the aggregate principal amount of the Defeasance Assets so liquidated less their liquidation value.
3.7. What happens if the national parliaments asked to decide on the extension of the EFSF required for the purchase of the defeasance assets do not consent to this extension or ask for modifications? Will I continue to be bound to my declaration made with regard to the current inquiry?
The issuer of the Defeasance Assets has not yet been identified. It will be one or more AAA-rated sovereigns, supranational entities, sovereign agencies and/or sovereign-backed entities as indicated in the annex to the Letter of Inquiry. The Letter of Inquiry requests a non-binding indication of interest. No legal commitments will need to be made until the anticipated liability management transaction is launched and the final identity of the issuer(s) of the Defeasance Assets is known.
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4. Questions Specific to the Options 4.1. How will Option 2 work in practice?
Each investor opting for the Committed Financing Facility will have to sign a binding Financing Facility Agreement. As per the terms of this Facility on the Facility Draw-Down Date, which will be the 1st business day of the quarter in which existing bonds subject to Option 2 mature, each signatory will have to subscribe to either Rollover Par Bonds being issued or to making a cash advance to Greece in an amount equal or equivalent (where applicable) to the principal amount of its eligible GGBs. More details about how to provide proof of your holdings and participate will be disclosed in the Exchange Offer Memorandum.
4.2. Under Option 2, will the 30 year tenor of my commitment start from the day I agree to the Committed Financing Facility or from the maturity of my eligible GGB?
It is envisaged that holders who subscribe to Option 2, will be drawn on a 30 year loan commitment (or receive Rollover Par Bonds with 30 year tenor) at the beginning of the quarter their eligible GGBs mature, e.g. if their eligible GGBs mature in Feb 2013, then their commitment will be drawn on the first business day of Q1 2013 and they will receive a loan or a New Bond (subject to their election) maturing in Q1 2043.
4.3. If I accept Option 2, will I be able to sell my eligible GGBs for which I have accepted such option? Or will I have to hold them to maturity?
It is envisaged that holders who accept Option 2 will be able to sell and/or trade freely their eligible GGBs for which they have nominated this option. This will not relieve such holders from their obligation under the committed financing facility.
4.4. If after selecting Option 2, I sell my eligible GGBs, will the financing commitment move to the new owner of the eligible GGBs?
No, the original holder of the eligible GGBs will remain responsible for its financing commitment to Greece, even if it has sold the eligible GGBs for which it has elected Option 2.
4.5. Under Option 2, what happens to my commitment if an Event of Default occurs before the commitment date?
In the case that Greece defaults (as defined under the terms of the New Par Bonds), it is anticipated that commitments under the Committed Financing Facility will extinguish.
4.6. Under Option 2, in which circumstances is my commitment invalidated?
Conditions precedent for the Committed Financing Facility have not been finalised as yet.
4.7. Under Option 2, what happens if my commitment is drawn before my current bonds are redeemed and an Event of Default occurs?
In the extremely unlikely event that an Event of Default will occur during the period between the commitment draw-down under Option 2 and redemption of the current bonds, respective investor(s) will have separate claims against Greece in respect of the current bonds and the New Par Bonds issued under Option 2. In respect of New Par Bonds we draw your attention to description of Claim upon Acceleration of New Bonds.
4.8. Can you explain Option 4 in relation to the other Options?
The main differences between Option 4 and Options 1-3 are:
- shorter average life (15 years vs 30 years)
- amortising rather than bullet maturity
- the Defeasance Assets cover 40% (rather than 100% as is the case in options 1 to 3) of the initial principal amount of the New Discount Amortising Bonds, and
- upon occurrence of an acceleration, restructuring or principal default with respect to the New Discount Amortising Bonds, part or all the Defeasance Assets will be liquidated and the proceeds paid to bondholders. In Options 1 to 3, the Defeasance Assets will be released only on the final maturity date (irrespective of an early acceleration).
(The explanation provided under this question is indicative, is used for illustration purposes only and no representation or warranty, express or implied, is made that such explanation is accurate or complete.)
4.9. If I accept to participate in the anticipated liability management transaction, will I also receive recovery proceeds in addition to the New Bonds?
No, holders will only receive New Bonds in equivalent nominal amount and relevant tenor as provisioned under each option and in accordance with the terms and conditions of the expected liability management transaction.
4.10. Option 4: Please explain the rationale for linking the Early release of Trust Assets to ISDA credit default swap determinations.
Option 4 is similar to an insurance structure where the collateral is to be released upon proof of loss. An independent assessment of the occurrence of a loss event needs to be made. In view of this requirement, an ISDA determination was deemed to be most appropriate. Similarly, the magnitude of loss is also determined using an ISDA Auction.
4.11. Regarding option 4, is there an intention to include bonds maturing after 1 January 2014?
Currently it is anticipated that only bonds maturing before 1 January 2014 will be eligible for Option 4.
4.12. Under Option 2 commitment starts at the beginning of the quarter eligible GGBs mature. So if we hold bonds that mature end of the quarter this means we have double exposure for those holdings for the period from commitment till our bonds mature?And what happens if we have an event of default during this period?
Under Option 2, Greece may draw down under the Committed Financing Facility at the beginning of each calendar quarter subject to a series of conditions precedent (to be included in the legal documentation of the anticipated liability management transaction) including AAA securities provided by sovereigns, supranational entities, sovereign agencies and/or sovereign-backed entities to defease the principal amount of the draw down. From the point of draw down until the maturity of the eligible GGB (if the investor is still holding the GGB, which is not a requirement under Option 2) it is possible that an investor could have increased exposure. This increased exposure should only persist within a quarterly reporting period. In the event Greece defaults on one or both of the securities during this period, an investor would have two separate securities exposed to different events of default and different claims.