ATHENS Greece faces a Thursday deadline for a debt restructuring deal with private investors that is crucial to its new 130 billion euro ($172 billion) bailout package needed to avoid a chaotic default.
Failure to secure a deal with private sector creditors would threaten the rescue package agreed last month with the European Central Bank, the European Union and the International Monetary Fund and open up the threat of a chaotic debt default.
For the deal to go ahead, Greece needs to secure a response from just over 50 percent of those holding 177 billion euros of bonds issued under Greek law and for two-thirds of those to agree to take the deal, which will cut the value of their holdings by around 74 percent.
To help ensure the deal goes through, Greece has created so-called collective action clauses (CACs) which will enable it to force the exchange on investors even if they opt to hold out, provided certain conditions are met.
The following are key terms of the proposed deal, dubbed Private Sector Involvement (PSI), and estimates of investor holdings of Greek government bonds under domestic law.
SUMMARY OF GREEK BOND SWAP OFFER
ELIGIBLE BONDS - Privately held bonds issued or guaranteed by the Greek state governed by Greek or foreign law are eligible. The total notional amount is 206 billion euros.
COLLECTIVE ACTION CLAUSES (CACs) - Under legislation passed on February 23, Greece can force the conditions of the bond deal on bondholder even if they opt out of the swap deal, provided it meets certain thresholds in a bondholder vote.
This is because it has written so-called CACs into 177 billion euros worth of debt securities governed under Greek law. The remainder of the bonds, which are written under English or other foreign law, already had CACs attached.
THRESHOLDS - Greece is aiming for as high a participation rate as possible. It has said it will go ahead with the deal if 90 percent of eligible bonds are tendered.
It will consult with its public sector creditors, the EU, the IMF and ECB if approval is 75-90 percent, and could go ahead with the swap without activating CACs.
If the swap offer results in less than 75 percent participation and the consent threshold on CACs is not achieved, it has said it will abandon the deal.
Legally, Greece needs a minimum of 50 percent of holders of bonds written under Greek law to vote on the deal, or else there is no quorum and the restructuring will be deemed to have failed.
Of those voters, two-thirds need to say yes. That means the lowest theoretical take-up rate for the deal to be approved is just 33 percent of the holders of the 177 billion euros of debt securities written under Greek law. If there is a 100 percent response, then 118 billion euros of the of the overall debt would need to be involved in the exchange.
If it meets that target, Athens can force the conditions of the deal on all holders of Greek-law bond through applying CACs, so in principle, the deal could scrape through with investors holding just 59 billion euros worth of debt voting in favor.
But while that target seems unambitious, the restructuring is by no means a done deal. If sufficient numbers of people vote no, they could still scupper the swap and cause a potentially catastrophic disorderly default.
For instance, if the turn-out in the paper vote was 70 percent, and 50 percent of those voted no, the deal would be off even if the number of yes-voters was greater than the theoretical minimum.
The process for bonds written under foreign law -- some 29 billion euros -- is different.
CREDIT EVENT - If Greece activates the CACs, this is likely to trigger a pay-out of insurance policies known as credit default swaps (CDS). This is determined by a committee at the International Swaps and Derivatives Association (ISDA).
The net CDS holding is about $3.25 billion so is unlikely to pose a systemic threat.
DEBT SWAP TERMS - For every 100 euros of old bonds tendered, investors will get 31.5 euros of new Greek securities and 15 euros in EFSF notes maturing within two years. The notional haircut is 53.5 percent.
MATURITIES - The new bonds will have 11 to 30-year maturities, running from 2023 to 2042.
COUPON RATES - The new Greek government bonds will pay coupons as follows:
- 2 pct annually up to 2015
- 3 pct from 2016-20
- 3.65 pct in 2021
- 4.3 pct in 2022-42
GDP SECURITIES - Investors participating in the swap will also get GDP-linked securities entitling them to annual payments of up to 1 percent of the notional amount of the new bonds starting in 2015 if Greece's GDP exceeds a threshold (not yet specified).
OFFER EXPIRES - 2100 CET (2000 GMT) March 8, unless extended
SETTLEMENT DATE - March 12 for Greek law bonds. Foreign law bondholders will hold meetings March 27-29, delaying settlement until April 11.
SWAP ADVANTAGES - New bonds will be under English law and rank "pari passu" with official sector loans. GDP-linked securities offer upside to coupons. Upfront payment of EFSF notes.
($1 = 0.7573 euro)
(Reporting by George Georgiopoulos; Editing by Douwe Miedema and Mark Potter)