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The procedure for the exchange of Greek bonds was launched yesterday, 24^th February, with the official invitation extended by the Greek state to bondholders worldwide. The success of the PSI procedure will depend on the voluntary participation of institutional creditors holding 75% of the bonds provided for exchange.

The PSI includes bonds maturing in 2057, instead of in 2035 as originally anticipated, and government guaranteed loans to state enterprises, the state railway company, public transport in Athens, the defence system. The total value of bonds and loans amounts to 206 billion euro, as stated in the invitation.

At the same time the framework for the activation of CACs is being determined, a special provision is made for the bonds held by U.S. institutional lenders, bondholders are assured that a special account will be opened, through which interest on the new Greek bonds will be repaid with priority, also providing for the subjection of the new bonds to English law.

The new bonds

Institutional lenders are called to respond within ten days as to whether they will participate, and if all goes well, the new bonds will be issued on 12^th March, eight days before the maturing of the three-year bonds worth 14.4 billion euro, which will happen on 20^th March.

In any case, it should be noted that in the invitation to institutional lenders there is a list of bonds subject to participation in the PSI, and there is another list in the enactment of the Council of Ministers published in the State Gazette.

The contract approved by the Council of Ministers consists of three key components:

- First, it has been highlighted in the invitation, and this is most important, that in order for the PSI programme to come into force and to be implemented, the participation of creditors will have to reach 75% of the value of the bonds exchanged. Given that the value of the exchange bonds is 206 billion euro, the voluntary participation of institutional creditors should include bonds worth 154.5 billion euro.

In the event that voluntary participation is below 75%, then it has been clearly noted that there will be no PSI and no exchange of bonds will take place. This will surely be the worst case scenario, but according to estimates of the Institute of International Finance, the involvement at least of its members will be particularly high.

- Given that voluntary participation is 75% to 90%, then negotiations with the official creditors (European Union, International Monetary Fund, European Central Bank) are expected to take place on whether some viability of the Greek debt has been achieved through the participation of private creditors and whether it can be achieved through greater involvement of the public sector (OSI). During the negotiations it will also be decided whether collective action clauses - CACs should be triggered.

The activation point for the CACs is two thirds of the total nominal value of each bond (66.67%). This means that if participation in the PSI is between 75% and 90%, the clauses will be triggered. However, if the bids for a given bond cover an amount less than 66.67%, then that bond is not included in the PSI.

- In the event that voluntary participation exceeds 90%, PSI will continue and will end normally without the activation of CACs. This option gives hope to small individual lenders that cutting of the bonds that will be incurred in the event of mandatory participation will be avoided.

Conditions of the exchange

The procedure started on 24^th February, 2012, and bondholders are offered to exchange their bonds with:

- New bonds that will be issued with a nominal value equal to 31.5% of the nominal value of the old bonds.

- Bonds of the European Financial Stability Fund (EFSF) with two years or less maturity period, with a nominal value of 15% of the exchanged bonds.

- For U.S. bonds holders instead of two-year bonds, a cash payment of 15% of the initial value of the bonds has been provided.

- Bonds, related to the GDP of Greece, whose value will be equal to the nominal value of the new bonds and will yield up to 1% provided that GDP growth exceeds official estimates.

- For the accumulated interest on bonds included in the PSI (estimated on more than 5.5 billion euro) six-month EFSF zero coupon bonds  will be provided.

Interest

Interest on bonds that creditors will receive under the PSI, will be as follows:

- For the period from 2013 to 2015 - 2%

- For the period from 2016 to 2020 - 3%

- In 2021 - 3.65%

- For the period from 2022 until 2042 - 4.3%

As for the bonds related to the GDP, it has been stressed that they will be provided together with the new bonds (of two years and 30 years maturity) with the following characteristics:

- They will have no principal

- They will have a yield, calculated on a nominal value equal to the nominal principal amount of new bonds. The nominal amount will be reduced each year from 2024 until the expiry of the bonds.

- The yield on bonds related to the GDP will depend on the percentage annual growth in the real GDP. The limit of the yield will be 1%.

- They will expire in 2042.

- They will be subject to English law, as well as all the new bonds for that matter.

«Titanic efforts of the country»