Talks aimed at reaching an agreement on the private sector involvement plan (PSI+) hit a snag on Friday despite widespread optimism for a deal by the end of the day. There was still some distance between the two sides on the interest rate of the new bonds Greece will issue, as the private bondholders are asking for an average coupon of 4.25 percent, while Greece, the eurozone and the International Monetary Fund are insisting on a 3 percent rate. Late on Friday there was a fresh meeting between Prime Minister Lucas Papademos, Finance Minister Evangelos Venizelos and Charles Dallara, the head of the Institute of International Finance (IIF), which represents most of the private creditors, but no deal was reached. Sources suggested that before the meeting there was a teleconference among IIF members who authorized Dallara to negotiate a coupon of no less than 3.8 percent. The snag emerged in the afternoon as Greece’s international creditors -- known as the troika -- insisted on a smaller rate.
The proposal that the IIF originally proposed was for an average rate of 4.25 percent -- 3 percent for bonds maturing by 2014, 4 percent for bonds up to 2021 and 4.5 percent after 2022. The IIF also wants a rate surplus in the case of future growth in the Greek economy. The haircut will be a nominal 50 percent, as agreed at the eurozone summit in October, but its impact on the bonds’ net present value will range between 64.5 percent and 69.5 percent, depending on the discount rate to be used. The new bonds will have a 30-year maturity period, while there will be a 10-year grace period during which bondholders will only receive interest and after which Greece will pay both interest and capital.
For every 100 euros of current debt, bondholders will receive 35 euros in 30-year paper that will be under the same status (British law) as the bonds issued by the European Financial Stability Facility (EFSF), and 15 euros in two-year bonds from the EFSF, instead of the original plan for cash payment. Talks are set to continue over the weekend and into next week, as a deal needs to be reached as soon as possible.