Bulgaria’s bond swap

LONDON (Reuters) – Bulgaria has announced the beginning of its Brady bond swap, part of a long-term plan to restructure its debt with the ultimate aim of joining the European Union. Bulgaria’s Interest Arrears Bonds (IABs) soared to 89.125 percent of face value by 4.46 p.m. local time yesterday, up 1.875 points on the session, after lead managers JP Morgan and Schroder Salomon Smith Barney made a statement saying the swap was starting. In exchange for the new instrument, Bulgaria will tap its 8.25-percent 2015 maturity global bonds originally issued on April 10 for Interest Arrears Bonds, tranches A and B of the country’s Front Loaded Interest Reduction Bonds (FLIRBs), and tranches A and B of the country’s discount bonds. The leads will announce the price of the new global bond tranche, and the minimum clearing prices for each bond at 8 a.m. New York time, or 1300 GMT tomorrow, and give the full results of the auction at 10 a.m. New York time (1500 GMT) on Thursday. The new bonds will settle on October 9. The pricing formula for the bonds is as follows. For each $1,000 of Brady bonds, an investor entering the swap will receive the following value of global bonds: $1,000 multiplied by a scaling factor, multiplied again by the sum of the clearing price and accrued interest, and then divided by the sum of the global bonds’ issue price and the global bonds’ accrued interest. The scaling factor is 0.97 for IABs, 20/21 for FLIRBs and 1.00 for discount bonds. The swap had been subject to some uncertainty, as Bulgaria postponed investor roadshows at the beginning of last week, because the country’s Parliament had withheld its permission the week before. Bulgaria’s Parliament finally gave its approval on Friday, but Bulgarian officials said they would only visit US investors to make their case for the swap, rather than US and European investors as originally planned. Bulgarian officials said at the start of the month that they planned to swap up to $800 million of its Brady debt, which could save $346 million in debt service costs over 10 years. They also said that after the swap, Bulgaria’s ratio of debt to gross domestic product, which stood at 61.3 percent in June, would be below 60 percent as required by European Union’s Maastricht criteria. Bulgaria aims to wrap up EU entry talks by the end of next year, but is not expected to join the Union before 2007. A group of eight Eastern European counties, as well as Cyprus and Malta, are set to join the EU in 2004, providing they meet the club’s tough rules this year. Brady bonds, named after then US Treasury Secretary Nicholas Brady, were designed as part of a program in the 1980s and 1990s to relieve the crushing debt burden of heavily indebted poor nations. – Panamaxes are still showing last week’s strength with plenty of fixing. M/V «Lemnos,» 86,722 dwt, built 1982, is under close negotiations with Logmar, delivery Bourgas beg. October, redelivery Arabian Gulf, at USD 13,000 daily, while Cosbulk has fixed M/V «Ocean Pride,» 72,416 dwt, built 1997, delivery Oct. 14-15 US Gulf, redelivery Singapore/Japan at USD 10,000 daily and USD 300,000 ballast bonus.

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