* Talks on bond swap make some progress, will continue
* Banks want new bonds to have credit status of official
* IMF's Thomsen says confident on PSI deal, key to debt
(Adds IMF's Thomsen)
By George Georgiopoulos
ATHENS, Dec 13 A deal to restructure Greek
bonds could see banks rank on an equal footing with official
euro zone lenders to the country under a plan being discussed,
one of the lead negotiators said on Tuesday.
That was the key part of talks between Greece and private
bondholders on a debt swap on Tuesday, which made
progress but ended without agreement.
It could see private sector creditors rank "pari passu" with
the claims of the EFSF euro zone bailout fund and sovereign
creditors, with coupons on the new bonds paid to banks and other
investors at the same time as interest payment on loans.
"We've made progress, but there are a number of remaining
unresolved issues that will require much further effort by all
parties if we're to find common ground," Charles Dallara, head
of the Institute of International Finance (IIF), told Reuters by
Talks were likely to restart in Paris on Thursday
or Friday, he said.
The two sides are still haggling over the coupon rate and
sweeteners to seal a deal, bankers involved in the discussions
The bond swap, dubbed private sector involvement (PSI+), is
a key part of the debt-choked country's 130 billion euro ($170
billion) bailout, and Athens is keen to clinch a deal by the end
of January to secure crucial budget relief before elections due
on Feb. 19.
As the private sector and government try to bridge a gulf
between the two sides, bankers involved in the talks said they
found some common ground with the co-financing structure, which
would improve the quality of the new Greek bonds issued to
"Banks moved towards the sovereigns' proposal on the
condition that the new bonds have about the same credit status
as official sector loans," a banker involved told Reuters.
Dallara said the private sector and Greek authorities "had a
sense of urgency" after previous talks had stalled.
"It's very clear that it's vital for Greece and Europe that
we find common ground on a voluntary deal, so that's why all
parties need to show some willingness to compromise," he said.
At a summit on Oct. 27, euro zone leaders reached a deal
with private banks and insurers to accept a 50 percent loss on
the notional value of outstanding Greek bonds they hold in
exchange for new instruments.
The writedown is designed to help cut Greece's debt ratio to
120 percent of GDP by 2020 from 160 percent this year. It will
also save the state 5.1 billion euros in interest payments next
But negotiations on the details of the voluntary
restructuring of 206 billion euros of outstanding Greek
government paper in private sector hands face sticking points.
They include the coupon rate on the bonds and the assumed
discount rate, which determine the loss banks will incur in
terms of net present value (NPV). NPV is a measure of the
current worth of the bonds' future cash flows.
A successfully concluded debt swap is key to meeting
Greece's target to cut its budget gap to 5.4 percent of GDP next
year from a target of 9 percent this year and attain a primary
The International Monetary Fund's mission chief for Greece
Poul Thomsen said on Tuesday he was optimistic that a deal with
private-sector bondholders would be reached early next year, but
he declined to discuss specifics.
"I think the PSI is key to securing debt sustainability, and
of course to ensure adequate financing for the program for the
next 12 months," he told reporters in a conference call.
"I am confident that we will get this PSI, reducing debt to
120 percent of GDP" by 2020, he added.
Failure to reach an agreement on a voluntary writedown of
the bonds would have huge ramifications for Greece and the
insurance policies written on its debt, known as credit default
Sources have previously told Reuters that Greece is offering
bondholders 15 euros in cash and new bonds with a face value of
35 euros, paying a coupon of around 4.5 percent for every 100
euros of outstanding bonds.
But private creditors want the new bonds to pay a higher
coupon of 8 percent, with principal backed by AAA-rated assets.
Athens is being advised by law firm Cleary Gottlieb Steen &
Hamilton on implementing the debt swap, with Lazard Freres
acting as its financial adviser.
($1 = 0.7641 euros)
(Additional reporting by Steve Slater in London and David
Lawder in Washington; Editing by James Dalgleish)