EU plans Greek debt buyback open to all investors

The buyback of Greek debt, part of the nation?s second bailout, should be broad-based and occur at the same time as a bond swap now being negotiated, according to a European Union planning document.

The document, which wasn?t intended for release to the markets, says the operation would be open to all investors and include all of Greece?s outstanding government bonds. It also recommends making the buyback conditional on the debt swap, in order to minimize the amount of time that rating companies consider Greece to be in ?selective default.?

Greece could buy back its debt through a modified Dutch auction using short-term discount bills issued by the European Financial Stability Facility. The document, obtained by Bloomberg News, envisions the EFSF as the only source of funding for the buyback operation.

?If the offer is for EFSF short-term paper rather than cash, each bidder will make its own decision how to value the EFSF bills,? the document says. ?Bidding will simply be made by reference to the principle amount of bills each bidder requires in exchange for 100 euros? of Greek bonds.

The buyback, which EU and banking industry officials estimate at 20 billion euros ($27 billion), is part of a rescue package agreed upon by EU leaders on July 21, which includes 109 billion euros in public funds and the voluntary debt swap for bondholders. The buyback is likely to offer more overall debt reduction for Greece than the accompanying bond swap, the internal EU document said.


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