Debt expert advises stretching Cypriot bonds

One of the world’s leading experts on debt restructurings has proposed extending the maturities of Cypriot sovereign bonds and giving uninsured depositors in its banks certificates of deposit (CDs) as a solution to the Mediterranean island’s crisis.

In a paper titled “Walking Back from Cyprus,” Lee Buchheit of New York law firm Cleary Gottlieb Steen & Hamilton and his frequent collaborator Mitu Gulati of Duke Law School say European governments “trespassed on consecrated ground” with their plan to impose a levy on insured depositors in Cyprus.

They sketch out an alternative which would protect savers with deposits under 100,000 euros and grant those above that level 5-10-year interest-bearing bank CDs corresponding to the amount of their savings in excess of the insured threshold.

In addition, the maturities of all sovereign bonds would be extended by a fixed number of years, for example five. “By our reckoning, this would reduce the total amount of the required official sector bailout funding during a three-year program period by about 6.6 billion euros,” the paper says. [Reuters]

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