Biggest Greek Bondholders Will Forgive More Than Half Debt in Aid Accord

Bloomberg
February 21, 2012

Greece reached an agreement with its private creditors to secure the biggest sovereign restructuring in history, paving the way for a second bailout of the debt- ridden nation and averting an economic collapse.

Investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility, the International Institute of Finance said in a statement today after a final round of talks overnight. The coupon on the new bonds was set at 2 percent until February 2015, 3 percent for the next five years and 4.3 percent until 2042.

Greece needed to reach the deal to secure a 130 billion- euro ($173 billion) second bailout from European governments last night, or risk a default that could endanger the 13-year- old monetary union. The country’s debt was forecast to balloon to almost double the size of its shrinking economy this year without the write-off, the European Commission said in November.

“It’s better for banks to fork up a little bit more money than risk the contagion of an uncontrolled Greek default,” said Georg Kanders, a Dusseldorf, Germany-based analyst at WestLB AG (WESTLB). “Most investors will accept the deal. Banks have already written down the value of their Greek debt, so the impact should be limited.”

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