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Greece's Bond Swap Awaits EFSF Approval - WSJ.com
Greece's Bond Swap Awaits EFSF Approval
ATHENS—A proposed bond exchange program between Greece and its private-sector creditors is expected to take place sometime in October, but must first await approval by national parliaments granting new powers to Europe's temporary bailout fund.
The bond exchange, which aims to cut Greece's debt burden and lengthen the maturity profile of the country's public-sector debt, is being backed by the newly-empowered European Financial Stability Facility, or EFSF.
National legislatures in the 17 countries that now use the euro are in the process of drafting legislation to implement the changes to the EFSF. But so far none have ratified the changes and apparent delays in the process have unsettled European financial markets in recent weeks.
"The bond swap deal will go live after the enhanced EFSF has been voted on by parliaments," a Greek government official said. "After that approval, and to the extent that anyone can predict these things nowadays, we expect the live offer will come some time in October."
In July, European Union leaders agreed to a new €109 billion ($152.57 billion) aid program for Greece to cover its financing needs for the next several years. Central to the Greek plan is a distressed-debt exchange whereby the country's private-sector creditors agree to accept new bonds worth less than their original holdings.
The exchange would offer creditors four choices to swap or roll over their existing Greek government bonds maturing over the next few years, with new debt up to 30 years in duration. That new debt will be backed with collateral from the EFSF, which would issue new triple-A rated bonds to secure the principle on the new Greek bonds.
"When the new powers of the EFSF have been voted on, the fund will then be able to provide collateral for the scheme," the official said. "After that, we can proceed with a formal offer."
The Institute for International Finance, a trade body of the world's leading banks and author of the proposal, says the plan is expected to slice €13.5 billion off Greece's total stock of €350 billion in public debt.
Late last month, Greece's government sent a letter to Greek banks setting a Sept. 9 deadline for them to detail their participation in the bond-swap program. But according to two Greek government officials, the September 9 deadline doesn't represent a final date for the deal—as was widely understood in the markets—and no statement is expected to be issued Friday.
"The swap program is not over on Friday," said a second Greek government official. "There are still information sessions scheduled for the coming weeks in Asia and the Americas."
Despite more than a month of talks with lenders on the deal, so far, participation rates have been less-than-hoped for. According to a third Greek government official, financial institutions holding about 75% of Greek government bonds have declared their participation—less than the 90% target set out by the government.
