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frmaoro
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High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [email protected] to buy additional rights. More on leaked Greek debt deal documents | Brussels blog | News on the European Union from the Financial Times
More on leaked Greek debt deal documents
February 15, 2012 3:37 pm by Peter Spiegel
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Lead negotiators for Greek bondholders, Charles Dallara and Jean Lemierre, outside the Greek prime minister's office last month.This morning, the dead tree edition of the FT has a story based on some leaked documents we got our hands on regarding the massive Greek debt restructuring that needs to begin in a matter of days.
The documents make clear the schedule is slipping dangerously; the meeting of eurozone finance ministers tonight that has been cancelled was supposed to approve the launch of the restructuring so the process can begin Friday. The whole thing needs to be done before a €14.5bn Greek bond comes due for repayment March 20. Time is running out.
But perhaps more interestingly is the fact that eurozone finance ministries asked for financial advice from New York financial advisors Lazard and legal advice from the New York firm of Cleary Gottlieb Steen & Hamilton about what the consequences would be if they launched the debt restructuring – but were forced to scrap it after it had started.
As is our tradition, we thought we’d give Brussels Blog readers a bit more on what the documents had to say.
The two separate notes, distributed to members of the “euro working group” – senior national finance ministry officials who have been doing all the spadework on the Greek programme – make pretty clear eurozone officials are suddenly finding themselves worried about the whole deal collapsing because of all the moving parts that need to be tied down for a successful restructuring to be completed.
They also make clear the biggest problem they’re worried about is parliamentary approval of the €93.5bn in cash and bonds needed to execute the restructuring, which will happen through a bond swap where private debt holders trade in their €200bn in bonds for new ones worth half that. It may sound counterintuitive that eurozone governments have to cough up €93.5bn in order to wipe €100bn of debt off of Greece’s books, but we’ll get back to that in a moment.
The real problem, according to a memo sent last week to accompany the legal and financial advice, is that eurozone parliaments that need to approve the funds – which include the increasingly obstinate German, Dutch and Finnish legislatures – will not know for sure if Greece has lived up to its side of the bargain before they vote.
“t is likely that not all prior actions [by Greece] can or will be implemented by the time Member States need to start the parliamentary approval procedure for the second increase,” the memo reads.
The most recent in a series of a constantly-changing “tentative timetable” for the debt swap, which we also got our hands on, has the parliamentary approval process beginning tomorrow. Given the cancelled finance ministers meeting tonight, that will not happen.
So what happens if a parliament rejects the funds after Greece has already made the debt swap offer? The Cleary Gottlieb memo makes clear that they could withdraw the offer as easily as they made it. For the uninitiated, “HR” refers to the “Hellenic Republic” (Greece’s formal name) and “GGBs” are “Greek government bonds”:
The HR will only be required to indicate whether it has accepted eligible GGBs and consents once the invitation expires, as further described in the invitation. Until such time, the HR is not bound by the invitation, and can call it off, in whole or in part, at any time. It is currently estimated that the invitation will be open at least for approximately 10 to 12 calendar days.
But Cleary, which is also advising Greece on the debt swap, clearly doesn’t like the idea of pulling the offer once it’s made:
As with any transaction of this nature, it would be highly preferable to go to the market (launch the invitation) once the issuer (HR) has confidence that the conditions within its control (and within the control of the other official sector entities involved) reasonably can be expected to be satisfied. Each sovereign restructuring is unique and sets precedent. The adverse reputational consequences (for the HR as well as the rest of the EU) of launching a transaction that fails as a result of their collective failure to meet the conditions should be assessed very carefully.
Which raises the second issue dealt with in the memos: Should Greece make the offer without the €93.5bn in place? The timetable we obtained makes clear this is the route being contemplated.
The cash and bonds need to be raised by the eurozone’s rescue fund, the European Financial Stability Facility, but several national parliaments must sign off before the EFSF can act. If the bond swap offer went forward on Friday, as was originally planned, national parliaments were not expected to finish their approvals until next Thursday, six days later. And all government officials involved would not have finalised the funding until the following Monday. In other words, funding would not be fully in place until two days before the bond swap offer was due to close, on February 29. Talk about your tight deadlines.
This is the topic of the Lazard memo. It noted that previously, all of this was due to be in place before the bond swap began – including the entire second €130bn Greek bail-out. But Lazard dryly notes that they have since been otherwise informed, and EFSF bonds, which will be used as “sweeteners” to attract bondholders to the swap, may not be ready beforehand after all.
The procedure that has been contemplated up to now is that prior to launch of Greece’s invitation to tender, the EFSF would have agreed to extend credit to Greece [through a second bail-out] and issue the EFSF notes, subject only to the conditions set forth in the related Financial Assistance Facility Agreement. We understand that there is a possibility that the EFSF may be unable to commit to make the EFSF notes available to Greece before the launch of the offer as certain European parliaments may not have acted to approve the EFSF financing by the date of the launch.
Lazard, like Cleary an advisor to Greece, does not like this new set up much either. As with the Cleary advice, Lazard says it is indeed possible to launch the offering without all the money in place. But they don’t recommend it:
We would expect this uncertainty to reduce the chances that the offer succeeds. Greece would in effect be asking creditors to commit the tender their GGBs and to block them for a period of as long as three weeks without having any assurance that Greece will be able to deliver the EFSF notes that it needs to deliver to close the exchange.
Lazard asks officials to put themselves in the place of a Greek bondholder. If you hold a Greek bond, even at current distressed levels, at least you can sell it. On the other hand, if you decide to agree to a swap and the deal falls through, you suddenly have a bond committed to a swap that won’t occur as the market to sell it collapses. So why would you participate at all?
[C]reditors may miss opportunities to sell their bonds in the secondary market at a much higher price than will be available if the offer fails. Furthermore, this unusual condition could even expose creditors to the added risk that the secondary market shuts down and they will be unable to sell their GGBs at any reasonable price. In our view, the offer will be much stronger and the likelihood of obtaining the desired level of participation significantly higher if Greece can, as the market no doubt expects it will, announce in its invitation that the EFSF notes and the related EFSF funding have been committed to Greece.
But that’s not going to happen. Time has basically run out for all that to be done before the offering occurs.
Why does so much money need to be in place beforehand? Because the direct and knock-on costs of such a debt restructuring are enormous. First, there are the straight forward costs: €30bn has been promised to private bondholders as “sweeteners” to participate in the deal.
According to the documents, these will come in the form of €30bn in EFSF bonds, which are about as secure as you can get in Europe these days. So private investors give up €200bn in Greek bonds and get €30bn in EFSF bonds plus €70bn in new, long-term Greek bonds. That will cost €30bn from the EFSF, plus another €5.5bn in interest payments due on the bonds being traded in.
Then there are the indirect costs: Because Greek banks are the biggest holders of Greek sovereign bonds, they will basically be wiped out in the debt restructuring, meaning €23bn in recapitalisation needs to be in place immediately.
Then there is the slightly more complicated issue of liquidity for Greek banks. In order to finance their day-to-day operations, Greek banks have essentially been living on a lifeline from the European Central Bank. The ECB lends them money in return for collateral, and that collateral has been Greek bonds. Well, if the Greek bonds are suddenly worthless (they will be declared in “selective default” once the bond swap begins), another €35bn needs to be in place to back the bonds as “credit enhancements”. Otherwise, Greek banks would shut down.
Add the €35.5bn for Greek bondholders and €58bn for Greek banks and you get a whopping €93.5bn. One caveat: the €35bn for “credit enhancements” will not be needed once the selective default period ends, which is expected to only be a few weeks, so in the end that money will likely be returned.
Still, it’s a lot of money that needs to be raised very quickly on a timetable that is growing narrower by the day.
Tags: Greece, sovereign debt crisis
Posted in EU, Euro, Fiscal policy | Permalink
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frmaoro
il Fankazzista
This is a cracker of a story by Peter Spiegel in this morning’s Financial Times. The restructuring of Greek debt is running into severe obstacles, as the eurozone is running out of time. According to the issues note, the eurozone needs to raise €93.5bn to complete the debt swap. Of that amount, €30bn would go directly to private bondholders as sweeteners, and €23bn to recapitalise Greek banks. But national parliaments are not expected to approve the release of the funds until after the debt swap is launched. The FT writes that the EWG proceeds along those lines despite having received outside legal and financial advice that the swap could fail without the money in place.
The article quotes Lazard as giving the following written warning: “We would expect this uncertainty to reduce the chances that the offer succeeds… Greece would, in effect, be asking creditors to commit to tender their [Greek bonds] and to block them for a period of as long as three weeks without having any assurance that Greece will be able to deliver the EFSF notes that it needs to deliver to close the exchange.”
The New York law firm of Cleary Gottlieb Steen & Hamilton, asked whether Greece would be bound by the debt swap offer once the invitation went out to private debtholders, said it would be legal to scupper the debt swap even after the invitation went out, but it warned against it. “Each sovereign restructuring is unique and sets a precedent,” says the legal note. “The adverse reputational consequences (for [Greece] as well as the rest of the EU) of launching a transaction that fails as a result of their collective failure to meet the conditions should be assessed very carefully.”
The article quotes Lazard as giving the following written warning: “We would expect this uncertainty to reduce the chances that the offer succeeds… Greece would, in effect, be asking creditors to commit to tender their [Greek bonds] and to block them for a period of as long as three weeks without having any assurance that Greece will be able to deliver the EFSF notes that it needs to deliver to close the exchange.”
The New York law firm of Cleary Gottlieb Steen & Hamilton, asked whether Greece would be bound by the debt swap offer once the invitation went out to private debtholders, said it would be legal to scupper the debt swap even after the invitation went out, but it warned against it. “Each sovereign restructuring is unique and sets a precedent,” says the legal note. “The adverse reputational consequences (for [Greece] as well as the rest of the EU) of launching a transaction that fails as a result of their collective failure to meet the conditions should be assessed very carefully.”
FNAIOS
Aò
Mah non la vedrei così drammatica.
Se ci tengono davvero una soluzione la troveranno e presto.
Oppure questa crisi greca dal finale per alcuni scontato è stata trascinata apposta verso il nulla per arricchire la Germania con i bund.
Ma questo secondo caso non lo vedo proprio o, meglio, sarebbe l'ennessimo complotto da bar a cui uno poi alla fine è costretto dai fatti a credere.
frmaoro
il Fankazzista
Grecia/ Juncker fiducioso su misure necessarie Eurogruppo lunedì
di: TMNews Pubblicato il 15 febbraio 2012| Ora 20:41
Stampa Invia Commenta (0)
Roma, 15 feb. (TMNews) - Sulla crisi della Grecia ci sono ancora delle questioni da regolare e il nuovo Eurogruppo che si terrà lunedì prossimo sarà in condizione di "prendere le misure necessarie". Se ne è detto fiducioso il presidente dell'Eurogruppo Jean-Claude Juncker, al termine della riunione per teleconferenza che si è svolta oggi.
buffone carlatanooooooooooo
di: TMNews Pubblicato il 15 febbraio 2012| Ora 20:41
Stampa Invia Commenta (0)
Roma, 15 feb. (TMNews) - Sulla crisi della Grecia ci sono ancora delle questioni da regolare e il nuovo Eurogruppo che si terrà lunedì prossimo sarà in condizione di "prendere le misure necessarie". Se ne è detto fiducioso il presidente dell'Eurogruppo Jean-Claude Juncker, al termine della riunione per teleconferenza che si è svolta oggi.
buffone carlatanooooooooooo
Nobody's
Γένοιο οἷος εἷ
Si...l'unica soluzione è un prestito ponte ....
da qui al 2040 ....
: D
Oramai siamo a questi piani
[ame=http://www.youtube.com/watch?v=2_6kK0WWwOg&feature=results_video&playnext=1&list=PLD92B34C2F368F087]Ciao Belli Galeazzi Ma Vaffanculo! - YouTube[/ame]
gualberto
Charlie don't Surf
scusa Nobody's.... venizelos dice che la riunione dell'eurogruppo si terrà domenica?
- Stato