BRUSSELS/LONDON Greece's private sector creditors have agreed to take a 21 percent loss on their bond holdings as part of a 37 billion euro contribution to Greece's rescue plan agreed on Thursday.
Four options are being offered to creditors, including three exchange offers and one rollover offer into debt of up to 30 year maturity, as well as a bond buyback scheme. The aim is to provide more sustainable funding to Greece and cut its debt pile, said the Institute of International Finance (IIF), which represents over 400 firms and led talks for the private sector.
The IIF said the bond exchange would help reduce Greece's debt pile by 13.5 billion euros, and by offering a menu of new instruments it aims to attract 90 percent investor participation in the plan.
This would provide financing to Greece of 54 billion euros from mid-2011 to mid-2014 and a total of 135 billion euros from mid-2011 to end-2020, it said.
The EU said the net contribution of the private sector from now until mid-2014 would be about 37 billion euros, or 50 billion including its buyback plan. Through to 2019, the private sector's net contribution is estimated at 106 billion, the EU said. The IIF did not give a net figure.
"Greece was gasping for air," said Charles Dallara, managing director of the IIF.
"You can't expect a country implementing these reforms to get enough oxygen in the economic system to be able to deliver the reform. This gives it some breathing space," he told Reuters in an interview.
Banks agreeing to participate include Deutsche Bank, HSBC, BNP Paribas, Societe Generale, plus insurers Allianz, AXA and Generali.
Dallara said he was confident of strong participation in the voluntary offers, due to the array of options.
Greece's debt profile will be improved substantially with the exchange and rollover program extending average maturities of privately held claims from six to 11 years, the IIF said.
In addition to the private-sector plan, Greece's debt will be cut by "potentially much more through a debt buyback program that is to be defined by the official sector," the IIF said.
"This offer is part of a comprehensive package which involves a balance of interest for all parties," said Josef Ackermann, IIF chairman and the head of Deutsche Bank, who was a key figure in the deal. "The private investor community will benefit from a more stable financial and economic environment."
The debt exchanges, lending and rollovers will take place at rates that are broadly comparable to that being extended by the EU and the new instruments will have significantly longer maturities of up to 30 years, the IIF document said.
Each of the four options is expected to contribute 25 percent of the plan.
The four instruments involve a bond exchange at par into a 30-year instrument; a bond offer at par involving rolling-over maturing Greek government bonds as they mature into 30 year instruments; a discount bond exchange at 80 percent of par into a 30-year instrument; and a discount bond exchange at 80 percent of par into a 15-year instrument.
The interest on the first two instruments is equivalent to a fixed rate of 4.5 percent, on the third it is 6.42 percent and on the fourth it is 5.9 percent.