Document Type

Working Paper

Publication Date

2012

Keywords

sovereign debt, Greece, creditors, sovereign bonds, CACs, Collective Action Clause, Eurozone, debt restructuring, default, risk, bondholders, debt relief

Subject Category

Banking and Finance | European Law | Law | Securities Law

Abstract

This paper analyses the main features of Greece‘s 2012 sovereign debt exchange and compares it to previous debt exchanges in the 1990s and 2000s. We focus on two questions. First, in present value terms, how much did creditors lose and how much did Greece receive? Second, how did the exchange persuade creditors to take a haircut? We find that (i) the aggregate haircut was 55-65 per cent, depending on how the old bonds are valued. This is lower than the numbers reported in the press, and less than in Argentina 2005; (ii) the distribution of haircuts across bonds was exceptionally unequal, ranging from a close to 80 per cent on very short term bonds to no haircut at all on Greece‘s longest dated bond; (iii) the debt relief received by Greece was large, in the order of 48 per cent of GDP in present value terms (excluding bank recapitalisation costs generated by the restructuring); (iv) while not voluntary, the exchange was not especially coercive based on a standard set of criteria. Free riding was addressed by exploiting the fact that most outstanding debt was issued under domestic law, and by making the new bonds de facto senior to the old ones – including through a ―co-financing agreement‖ which gives equal priority to the new bonds and Greece‘s payments to the EFSF for bills received for the purposes of the debt exchange. We conclude by asking what lessons might lie in the Greek 2012 restructuring for future crisis management in the Eurozone.