A few highlights:
- ECB and Euro Area Central Banks hold €25bn out of the €85.5bn of GGBs maturing by 2014
-An estimated “significant percentage – up to 80%” -- of existing GGB holders would be willing to participate in the proposal
- The European Union and the International Monetary Fund would continue to provide new debt financing to Greece
-During July 2011-June 2014, Participants have the option to either:
(1) Invest a minimum of 70% of the principal amount of proceeds received in new GGBs,
- With a maturity at issue of 30 years; and
- A full principal guarantee by an SPV collateralised by zero-coupon bonds purchased from one or more AAA-rated sovereigns, supranational institutions or European agencies;
- Bearing interest at a rate of 5.5% plus the yearly Greek GDP growth capped at 2.5% and floored at 0% per annum
(2) Invest a minimum of 90% of the Received Amounts in new GGBs:
- with a maturity at issue of 5 years; and
- Bearing interest at a rate of 5.5%.
Correct me if I’m missing something, but given recent Greek 5-year yields, I don’t see Option 2 as being particularly attractive to most investors.
I’ll be back with more when I get some time to digest, but a few other quick thoughts:
- There is plenty of skepticism out there as to whether “the French Proposal” accomplishes anything other than avoiding a Greek default, such as, oh I don’t know, reducing their debt load. See, for example, this statement from Unicredit credit strategist Tim Brunne.
- Having said that, some observers have commented that the new investment seems a pretty rational one from an investor perspective, having both a growth index and a guarantee, as well as a long maturity
- Meanwhile, in case you wondered what Greeks think of the new proposed austerity measures:
Police have fired tear gas in running battles with stone-throwing youths in Athens, where a 48-hour general strike is being held against a parliamentary vote on tough austerity measures.
Thousands of protesters have gathered outside parliament in the capital where public transport has ground to a halt.