Brussels, Belgium, July 21, 2011 — The IIF Board announced today the attached IIF Financing Offer for Greece. The program offers a menu of new instruments to investors in order to mobilize voluntary participation of investors with a target participation rate of 90%. This will provide financing to Greece of €54 billion from mid-2011 to mid-2014 and a total of €135 billion from mid-2011 to end-2020.
Greece’s debt profile will be improved substantially with the exchange and roll-over program extending average maturities of privately held claims from 6 to 11 years. The stock of debt will be reduced by €13.5 billion through the bond exchange program and potentially much more through a debt buyback program that is to be defined by the official sector. The debt exchanges, lending and roll-overs will take place at rates that are broadly comparable to that being extended by the EU (see attached Financing Offer and Term Sheet). The new instruments will have significantly longer maturities up to 30 years.
Dr. Josef Ackermann, Chairman of the Board of the Institute, stated, “We believe that taken together with the intention of the EU to improve the terms of its financial assistance to Greece, the recently strengthened economic reform program of the Greek government and the additional support of the IMF, this offer can contribute substantially to improving the competitiveness of the Greek economy.”
Mr. Charles Dallara, Managing Director of the IIF added, “With this offer, the global investor community is stepping forward in recognition of the unique challenges facing Greece. The removal of financing uncertainties will allow Greece to focus on the key elements of the reform program itself—further fiscal adjustment, revenue enhancement, privatization, and other structural reforms—which can lay the basis for renewed growth.”
As explained in the Financing Offer, investors will be offered four new instruments in addition to the opportunity to participate in a debt buyback program to be established by the Greek government in consultation with the official sector. The instruments are structured to attract voluntarily a wide range of investors. The four instruments involve:
http://www.iif.com/press/press+198.php
Greece, we are prepared to participate in a voluntary program of debt exchange and a buyback plan developed by the Greek government. In summary, the program involves an exchange of existing Greek government bonds into a combination of four instruments together with the Greek Debt Buyback Facility.
Four Instruments: (Refer to the Term Sheet for details)
1) A Par Bond Exchange into a 30 year instrument
2) A Par Bond offer involving rolling-over maturing Greek government bonds into
30 year instruments
3) A Discount Bond Exchange into a 30 year instrument
4) A Discount Bond Exchange into a 15 year instrument
For instruments, 1, 2 and 3 the principal is fully collateralized by 30 year zero coupon AAA Bonds. For instrument 4, the principal is partially collateralized through funds held in an escrow account.
It is assumed that investors will select among the four instruments in equal proportions of 25% of total participation.
All instruments will be priced to produce a 21% Net Present Value (NPV) loss based on an assumed discount rate of 9%. The terms outlined in the Term Sheet are broadly comparable to those of the official sector. The interest rates are structured to maximize the benefits to Greece in the early years of the program as Greece regains access to global capital markets. For example, the coupon on the Par Bond will be 4% during the first five years, 4.5% during the next five years, and 5% for years 2011-2030. Based on a target participation rate of 90%, the private sector investors through this program will contribute €54 billion from mid-2011 through mid-2014 and a total of €135 billion to the financing of Greece from mid-2011 to end-2020. In addition to this assured financing, this program will also improve significantly the maturity profile of Greece’s debt, increasing the average maturity from an average of 6 years to 11 years.
The size of the Buyback Facility will be determined after further discussions involving the official sector. It is expected to be of sufficient scale that when combined with the €13.5 billion debt reduction through the discount bond exchange, there will be a meaningful reduction in the stock of Greece’s debt relative to GDP. This will be reinforced by Greece’s new privatization program and prospects for higher growth which
should emerge as the program takes hold.
We consider this offer to be unique given the exceptional circumstances of Greece. Not withstanding the progress made by Greece during the last one and a half years, the scale of Greece’s economic imbalances and the inefficiencies that have been embedded in its economic structures require a special approach that can enhance debt sustainability and restore confidence in the future of the Greek economy.
The offer is already supported by the financial institutions listed in Annex 2, and we expect support to build as the offer and the comprehensive program surrounding it is more widely disseminated.
Our offer is conditioned on the comprehensive economic reform program of Greece, the strong support of the EU, which has just been reinforced, and additional support by the IMF.
Annex 1 - Term Sheet
Instruments and Technical Aspects
1. A Par Bond Exchange into a new 30 year instrument with the principal collateralized by 30 year zero-coupon AAA rated bonds. The zero coupon bonds are purchased using EFSF funds.
Greece pays the funding costs to the EFSF. The principal is repaid to the investor using the proceeds of the maturity of the zero-coupon bonds.
The coupon paid to the investor has the following structure:
Period Coupon
Years 1 – 5 4%
Years 6 – 10 4.5%
Years 11 – 30 5%
This is equivalent to a 4.5% fixed coupon rate.
Assumed participation rate: 25% of total exchange.
2. A Par Bond offered at par value as a Committed Financing Facility to roll into new 30 year par bond at the time the current claim matures. The principal is collateralized using the same mechanism as for instrument 1.
The coupon paid to the investor has the following structure:
Period Coupon
Years 1 – 5 4%
Years 6 – 10 4.5%
Years 11 – 30 5%
This is equivalent to a flat 4.5% fixed coupon rate.
Assumed participation rate: 25% of total exchange.
3. A Discount Bond Exchange offered at 80% of par into a new 30 year instrument. The principal is collateralized using the same mechanism as for instrument 1.
The coupon paid to the investor has the following structure:
Period Coupon
Years 1 – 5 6%
Years 6 – 10 6.5%
Years 11 – 30 6.8%
This is equivalent to a flat 6.42% fixed coupon rate.
Assumed participation rate: 25% of total exchange
4. A Discount Bond Exchange offered at 80% of par value for a 15 year instrument. The principal is partially collateralized with 80% of losses being covered up to a maximum of 40% of the notional value of the new instrument. The collateral is provided by funds held in escrow. These funds are borrowed by Greece from the EFSF. The EFSF funding costs are covered by the interest earned on the funds in the escrow account so there is no funding cost to Greece of this collateral. The funds in escrow are returned to the EFSF on maturity, if not used, and the principal on the bond is repaid by Greece.
The coupon paid to the Investor is 5.9%.
Assumed participation rate: 25% of total exchange.
The rates presented here are indicative only based on today’s market conditions. Final pricing will be based on a fixed margin over the relevant Euro mid-swap rate at the time of execution.
All instruments will be priced to be economically equivalent at 21% NPV discount calculated at a discount rate of 9%.
Coupons quoted are fixed, annual rates.
Greece’s debt profile will be improved substantially with the exchange and roll-over program extending average maturities of privately held claims from 6 to 11 years. The stock of debt will be reduced by €13.5 billion through the bond exchange program and potentially much more through a debt buyback program that is to be defined by the official sector. The debt exchanges, lending and roll-overs will take place at rates that are broadly comparable to that being extended by the EU (see attached Financing Offer and Term Sheet). The new instruments will have significantly longer maturities up to 30 years.
Dr. Josef Ackermann, Chairman of the Board of the Institute, stated, “We believe that taken together with the intention of the EU to improve the terms of its financial assistance to Greece, the recently strengthened economic reform program of the Greek government and the additional support of the IMF, this offer can contribute substantially to improving the competitiveness of the Greek economy.”
Mr. Charles Dallara, Managing Director of the IIF added, “With this offer, the global investor community is stepping forward in recognition of the unique challenges facing Greece. The removal of financing uncertainties will allow Greece to focus on the key elements of the reform program itself—further fiscal adjustment, revenue enhancement, privatization, and other structural reforms—which can lay the basis for renewed growth.”
As explained in the Financing Offer, investors will be offered four new instruments in addition to the opportunity to participate in a debt buyback program to be established by the Greek government in consultation with the official sector. The instruments are structured to attract voluntarily a wide range of investors. The four instruments involve:
- A Par Bond Exchange into a 30 year instrument
- A Par Bond offer involving rolling-over maturing Greek government bonds into 30 year instruments
- A Discount Bond Exchange into a 30 year instrument
- A Discount Bond Exchange into a 15 year instrument
For instruments, 1, 2 and 3 the principal is fully collateralized by 30 year zero coupon AAA Bonds. For instrument 4, the principal is partially collateralized through funds held in an escrow account. All of the debt servicing risk on these new instruments, however, remains full Greek risk.
Dr. Ackermann stated, “This offer is part of a comprehensive package which involves a balance of interest for all parties. Greece will benefit from the improved EU terms, the support of the IMF, and the substantial financing and debt reduction coming from the private sector. The EU will benefit from the voluntary support by the private investor community and the very real prospect of drawing a line under this exceptional support for Greece. The private investor community will benefit from a more stable financial and economic environment.”http://www.iif.com/press/press+198.php
Thursday, July 21, 2011
IIF Financing Offer
The members of the IIF and other major financial institutions extend a financing offer to Greece. We welcome the intension of the EU to improve the terms of its financial assistance to Greece, including lower interest rates, extended maturities and a more flexible and a broader scope of operations for the EFSF. As part of a comprehensive plan, including additional support by the IMF and the redoubling of adjustment efforts byGreece, we are prepared to participate in a voluntary program of debt exchange and a buyback plan developed by the Greek government. In summary, the program involves an exchange of existing Greek government bonds into a combination of four instruments together with the Greek Debt Buyback Facility.
Four Instruments: (Refer to the Term Sheet for details)
1) A Par Bond Exchange into a 30 year instrument
2) A Par Bond offer involving rolling-over maturing Greek government bonds into
30 year instruments
3) A Discount Bond Exchange into a 30 year instrument
4) A Discount Bond Exchange into a 15 year instrument
For instruments, 1, 2 and 3 the principal is fully collateralized by 30 year zero coupon AAA Bonds. For instrument 4, the principal is partially collateralized through funds held in an escrow account.
It is assumed that investors will select among the four instruments in equal proportions of 25% of total participation.
All instruments will be priced to produce a 21% Net Present Value (NPV) loss based on an assumed discount rate of 9%. The terms outlined in the Term Sheet are broadly comparable to those of the official sector. The interest rates are structured to maximize the benefits to Greece in the early years of the program as Greece regains access to global capital markets. For example, the coupon on the Par Bond will be 4% during the first five years, 4.5% during the next five years, and 5% for years 2011-2030. Based on a target participation rate of 90%, the private sector investors through this program will contribute €54 billion from mid-2011 through mid-2014 and a total of €135 billion to the financing of Greece from mid-2011 to end-2020. In addition to this assured financing, this program will also improve significantly the maturity profile of Greece’s debt, increasing the average maturity from an average of 6 years to 11 years.
The size of the Buyback Facility will be determined after further discussions involving the official sector. It is expected to be of sufficient scale that when combined with the €13.5 billion debt reduction through the discount bond exchange, there will be a meaningful reduction in the stock of Greece’s debt relative to GDP. This will be reinforced by Greece’s new privatization program and prospects for higher growth which
should emerge as the program takes hold.
We consider this offer to be unique given the exceptional circumstances of Greece. Not withstanding the progress made by Greece during the last one and a half years, the scale of Greece’s economic imbalances and the inefficiencies that have been embedded in its economic structures require a special approach that can enhance debt sustainability and restore confidence in the future of the Greek economy.
The offer is already supported by the financial institutions listed in Annex 2, and we expect support to build as the offer and the comprehensive program surrounding it is more widely disseminated.
Our offer is conditioned on the comprehensive economic reform program of Greece, the strong support of the EU, which has just been reinforced, and additional support by the IMF.
Annex 1 - Term Sheet
Instruments and Technical Aspects
1. A Par Bond Exchange into a new 30 year instrument with the principal collateralized by 30 year zero-coupon AAA rated bonds. The zero coupon bonds are purchased using EFSF funds.
Greece pays the funding costs to the EFSF. The principal is repaid to the investor using the proceeds of the maturity of the zero-coupon bonds.
The coupon paid to the investor has the following structure:
Period Coupon
Years 1 – 5 4%
Years 6 – 10 4.5%
Years 11 – 30 5%
This is equivalent to a 4.5% fixed coupon rate.
Assumed participation rate: 25% of total exchange.
2. A Par Bond offered at par value as a Committed Financing Facility to roll into new 30 year par bond at the time the current claim matures. The principal is collateralized using the same mechanism as for instrument 1.
The coupon paid to the investor has the following structure:
Period Coupon
Years 1 – 5 4%
Years 6 – 10 4.5%
Years 11 – 30 5%
This is equivalent to a flat 4.5% fixed coupon rate.
Assumed participation rate: 25% of total exchange.
3. A Discount Bond Exchange offered at 80% of par into a new 30 year instrument. The principal is collateralized using the same mechanism as for instrument 1.
The coupon paid to the investor has the following structure:
Period Coupon
Years 1 – 5 6%
Years 6 – 10 6.5%
Years 11 – 30 6.8%
This is equivalent to a flat 6.42% fixed coupon rate.
Assumed participation rate: 25% of total exchange
4. A Discount Bond Exchange offered at 80% of par value for a 15 year instrument. The principal is partially collateralized with 80% of losses being covered up to a maximum of 40% of the notional value of the new instrument. The collateral is provided by funds held in escrow. These funds are borrowed by Greece from the EFSF. The EFSF funding costs are covered by the interest earned on the funds in the escrow account so there is no funding cost to Greece of this collateral. The funds in escrow are returned to the EFSF on maturity, if not used, and the principal on the bond is repaid by Greece.
The coupon paid to the Investor is 5.9%.
Assumed participation rate: 25% of total exchange.
The rates presented here are indicative only based on today’s market conditions. Final pricing will be based on a fixed margin over the relevant Euro mid-swap rate at the time of execution.
All instruments will be priced to be economically equivalent at 21% NPV discount calculated at a discount rate of 9%.
Coupons quoted are fixed, annual rates.
No comments:
Post a Comment