February 1, 2012
Bondholders negotiating a debt swap with Greece may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on the new bonds, people with knowledge of the talks said.
In discussions late last week in Athens, creditors lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time.
While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant -- which would pay bondholders more if the Greek economy rebounds -- would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, said two people, who declined to be identified because the talks are confidential.
“It’s like a concession from the Greek government, so it’s something that presumably smoothed negotiations,” said Matthew Czepliewicz, a London-based bank analyst at Collins Stewart Hawkpoint Plc. “When you are in the middle of turmoil you’re going to be conservative, and bank investors are unlikely to attribute any value to these warrants, even if they could prove valuable in the future.”
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