Friday, March 2, 2012

Greek PSI exchange summary - an offer you can't refuse

Here is a brief summary of the PSI exchange offer. It's a great deal - why would anyone become a holdout?

For every €100 notional value of the old Greek Government Bonds investors will get:
  • €31.5 euros of new Greek Bonds containing Collective Action Clause under the British law with special features like the Co-Financing Agreement. Note that this doesn't mean 31.5 cents on the euro because the new bonds are nowhere close to being worth par.
  • The new bonds will be in 20 different maturity tranches ranging from 2023 to 2042. Coupons will step up over time: 2% through 2015, 3% for 2016-2020, 3.65% in 2021, and 4.3% after that. This creates a principal amortization structure similar to a US 30-year mortgage (except the amortization starts in 10 years rather than immediately).
Source: BNP Paribas
  • €31.5 of GDP-linked notes (capped payoff of 1%, start paying from 2015 onwards)
  • €7.5 mm 1y EFSF notes (PSI Payment Notes) 
  • €7.5 mm 2y EFSF notes (PSI Payment Notes)
  • Accrued interest on the old Greek Bonds paid with EFSF 6m T-bills.
This results in the face value haircut of 53.5% and an NPV haircut of over 74% (less than 26 cents on the euro) ignoring the GDP-linked notes. The NPV of the GDP-linked notes is €1-2 assuming they pay maximum amount. And for those who believe these will pay the maximum amount because the Greek GDP will recover, I have a bridge in Manhattan I’d like to show you.

Of course don't call this a Credit Event yet, because it is a totally "voluntary" exchange. There is no default - just some bonds changing hands at 26 cents on the euro.
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