by Richard Barley
Wall Street Journal
February 21, 2012
Greece is close to making bondholders an offer they probably can't refuse. As part of its €130 billion ($172.1 billion) second bailout, Greece will launch a bond swap covering some €206 billion of debt. The deal isn't great: Bondholders will be asked to write off more than half of their investment, accept low coupons and remain exposed to Greek risk. But there are still some sweeteners—and the alternative may well be worse.
Greece will ask investors to swap each €100 of existing bonds for €31.50 in new Greek bonds with maturities of 11 to 30 years and €15 in European Financial Stability Facility notes with a maturity of up to two years. If all investors tender their bonds in full, the 53.5% reduction in face value would reduce Greece's debt by €110 billion and leave investors with about €65 billion in Greek bonds and €30 billion in EFSF notes. Greece gets low interest rates as the new bonds carry coupons of 2% for three years, rising to 3% over the following five years and then 4.3%, versus a weighted average coupon of 5% on its existing bonds. The steep face-value reduction and low coupons mean bigger-than-expected net-present-value losses for investors of over 70%, however.
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