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Crisis Theater: Ackerman chalks out four options, US battles with three

Stock market of Brussels

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The Greece theater was technically busy since a fortnight ago, when Politics finally cleared the way and though without evidence of the contrary, much of the rest has been a structuring job, Making Geece qand investors pay for the default and yet manage the new bailout into Greek debt at manageable prices. Ackerman’s deal finally agreed in the early hours today envisages upto 90% private investor participation esp in the period 2014 to 2020 but as of now immediately provides for a Euro 109 bln to Greece involving a 21% loss of Principal and unlimited rollovers hus engaging the rating agencies’ to a selective default yet discrediting them too as the plan stands most due diligence of safeguarding interests of bondholders.  The Deutsche Bank CEO was in-charge of the deal as the Head of International Institute of Finance.

The four options on the debt likely to be partaken equally include

a. An option for maturing bonds to be rolled over into fresh 30 year tender at par albeit at 4.5%

b. An option for current bonds to be exchanged at par for a coupon of 4.5% for a new 30 year term

c. An option for current bonds to be exchanged into

1. 30 -year bonds at 20% lower principal ( notional) (Discount Bond at 80% of par) for a higher coupon of 6.42%

2. 15-year Discount Bonds at 80% of par for a higher coupon of 5.91% (Reuters)

The IIF said the bond exchange would help reduce Greece’s debt pile by 13.5 billion euros, and by offering a menu of new instruments it aims to attract 90 percent investor participation in the plan.

This would provide financing to Greece of 54 billion euros from mid-2011 to mid-2014 and a total of 135 billion euros from mid-2011 to end-2020, it said.

The private investors will participate directly to the tune of EUR 37 bln till 2014 and the governments will be exposed to the other Eur 72 billion thru the ECB/EFSF. The same was announced after hectic parleys preceding the summit at Brussels yesterday

As investors will have to choose on a cut in value of their debt ( calc across at 21%) including their direct repurchase of new debt paper the default conditions triggered would immediately require action from rating agencies where contagion is the biggest risk However as the discount on the principal is not wild and the quantum assured thru ECB and sovereign guarantees manageable withou tnew allocations to the Eurozone’s standing crisis facilities, the debt is likely to sail through in later trading without too much of upward pressure on ields unless the GReek Political process falls through somewhere. Thus these bonds are likely to be stable even as other action in Spain and Portugal proceeds with the amount large enough to avoid a pesent Greek crisis and yet small enough to avoid future contagion cascading too fast, and not exciting any investor into holding out


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