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Greece’s Next Plan: Pay You Back in 100 Years

ATHENS – Struggling to pay back international investors who are demanding – and getting – usurious interest rates nearing 70 percent for two-bonds, Greece is reporting considering a new idea to pay them back – in the 22nd Century.
One of the options Greece is looking at is offering a 100-year bond in return for outstanding short-term debt, a banker at one of the institutions advising the country who said he saw the plans being studied told the news agency Reuters. BNP Paribas, Deutsche Bank and HSBC are advising Greece on its current debt restructuring exercise, alongside Lazard.
The agency said that officials at other banks on the deal would not confirm that the new option, which envisages a structure similar to so-called Brady bonds, is being looked at. One said the main focus was still on the current proposals going ahead without amendments. But strong demand for a century bond offered a few weeks ago by Mexico suggested a similar plan could make sense for Greece. “The financing costs of Greece are going to be horrible, but more importantly such a move avoids default. It’s more about surviving rather than doing what is right from a long-term financing point of view,” said Tim Jagger, Singapore-based RBS credit strategist.
Credit protection markets are signalling a 94 percent probability that Greece will default within five years as the country is drowning in a near $460 billion debt and 10 percent deficit and is surviving on a $152 billion bailout of rescue loans from the Troika of the European Union-International Monetary Fund-European Central Bank.
Before a planned second bailout of $157 billon was agreed on July 21, some Eurozone officials had urged the country to try and swap existing debt for bonds with maturities of up to 40 years. That was amended to a proposal to swap or roll over $182 billion or 90 percent, of outstanding debt maturing before 2020 into new bonds backed by Triple A issuers with longer maturities of up to 30 years. That would effectively mean that investors would receive 21 percent less than they loaned Greece, although speculation remains rampant it could reach 50 percent or more.
Reuters said that a 100-year bond would offer investors a security that would be less volatile if interest rates rise. But it would also mean larger swings in nominal face value for smaller yield moves, a feature that would make a century bond attractive for hedge funds. The likely high liquidity of a theoretical 100-year bond from Greece would also make it desirable.
A 100-year bond to restructure Greece’s debt would have the advantage of sending a strong signal to the market that Greece’s refinancing problems had been put away for a very long time. The banker said that the 100-year bond being considered would be structured like the Brady bonds used to rescue a number of Latin American countries which defaulted on commercial bank loans in the 1980’s. Most of the bonds that resulted from the Brady plan had a 30-year repayment and were partly backed by U.S. Treasury bonds. The Brady plan generated over $160 billion in bonds, which made these securities highly liquid. Greece has said it would not proceed with its former restructuring unless 90 percent of banks agreed, but Reuters said one banking source close the discussion said the Century Bond means that could change.
(Source: Reuters)

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