Greece poised to launch PSI

Private sector involvement (PSI) in the second Greek bailout is expected to get underway on Friday, according to sources, in an effort to write off EUR107bn of Greece’s debt — the biggest sovereign restructuring ever attempted.

The country’s financial adviser is Lazard, but Deutsche Bank and HSBC are the dealer managers on the EUR206bn debt swap, which includes the controversial retroactive collective action clauses (CACs) approved by the Greek parliament.

Greece must get nearly all of the debt held in private hands to take part in the swap in order to start receiving the EUR130bn of bailout monies that was agreed this week.

For that to happen, private investors in the so-called voluntary restructuring will need to accept a 53.5% nominal haircut on their existing holdings of EUR206bn.

They would swap their holdings for a package of new instruments with a nominal value of just 46.5% of the par value of their current Greek government bonds.

Investors will receive two-year bonds issued by the European Financial Stability Facility, which will account for 15% of the old par value. The remaining 31.5% consists of new Greek bonds that will mature over 20 years from 2023 in annual chunks of 5%.

The new bonds will pay a coupon of 2% annually for the three years until February 2015, then 3% for the following five years to February 2020, and 4.3% until the final maturity in February 2042. The weighted average coupon for the first eight years is 2.6% and for the full period 3.65%.

That means the effective value of the new instruments may be as little as 75% of the original bonds held. Private bondholders accepting the tender will also be automatically accepting the terms being applied to all Greek notes.

“The voluntariness is about as voluntary as a confession at a Spanish inquisition trial,» said Commerzbank CEO Martin Blessing on Thursday.

Given that many international institutions sold off their Greek paper as the restructuring terms deteriorated, the largest remaining private bondholders are Greek banks — which will have little option but to accept the offer if they are to receive up to EUR50bn of support to recapitalise via loans given to Greece.

The restructuring will trigger S