Monday 9 January 2012

Bloomberg News. Greece Bond Plunge Makes Buyback Option Realistic, ITC Says

Greece Bond Plunge Makes Buyback Option Realistic, ITC Says
2012-01-09 12:04:08.790 GMT

By John Glover
     Jan. 9 (Bloomberg) -- Greek government bonds have fallen sufficiently for a buyback to offer a realistic prospect of
wiping out a meaningful amount of debt at an acceptable price, according to research group ITC Markets.
     A buyback has been under consideration as part of Greece’s second bailout, according to a European Union planning document obtained by Bloomberg News in September. Greek two-year bonds, currently quoted at about 28 percent of face value, were then at 40 percent of par, while the nation’s 10-year debt has declined to 20 percent from 30 percent of nominal value.
     Negotiations between Greece and its creditors on a voluntary bond swap designed to reduce the nation’s debt burden
have stalled amid disagreements on the terms of the transaction, according to a report by Der Spiegel. A voluntary buyback at an agreed price alongside the exchange would simplify matters and offers advantages to both Greece and its creditors, according to Andreas Koutras at ITC.

     “Under current proposals anyone who bought Greek bonds at or near market prices or who has marked them down would be better off holding out,” Koutras said in an interview. “The swap is a truly bad solution. It doesn’t alter the dynamics or
the sustainability of Greek debt at all.”
     A buyback carried out at 30 percent to 35 percent of face value for private creditors and at 70 percent of par for the
official sector, including the European Central Bank, would cost a total 123 billion euros ($157 billion), assuming owners of 15 percent of the bonds hold out, according to ITC. That would allow 260 billion euros of notes to be retired and destroyed,
reducing Greece’s debt to 127 billion euros, ITC said.
     Banks represented by the Institute of International Finance, the Washington-based bank lobbying group, are
discussing cutting the face value of Greek debt by half and exchanging the notes for new, longer-dated debt to give a net
present value loss of at least 65 percent, according to Der Spiegel.

For Related News and Information:
Sovereign debt crisis monitor CRIS <GO>
Top bond stories: TOP BON <GO>
Top financial news: TOP FIN <GO>

--Editors: Michael Shanahan, Paul Armstrong

To contact the reporter on this story:
John Glover in London at +44-20-7073-3563 or

To contact the editor responsible for this story:
Paul Armstrong at +44-20-7330-7185 or