Wall Street Journal
August 1, 2011
The default is done, long live the default debate.
Greece's latest bailout includes a "soft" default, with private investors being asked to accept a "voluntary" debt restructuring. But the menu of choices on how to take that pain immediately forces them to decide if, and when, they think Greece faces a "hard" default further down the road.
The bond exchange, covering Greek debt maturing between 2011 and 2020, offers four options. Option one involves investors exchanging all their bonds at once for new 30-year bonds at par with a coupon that starts at 4% and rises over time to 5%. Option two is the same except investors roll over bonds as they mature. Under option three, investors take a 20% hit up front, but receive a 30-year bond with a higher coupon, rising from 6% to 6.8%. Option four has the same 20% hit but offers a 15-year bond with a 5.9% coupon. For options one through three, principal repayment is guaranteed by a zero-coupon 30-year bond issued by a triple-A borrower. For option four there is a complex cash escrow arrangement that covers losses partially.
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