18 LAWYER MONTHLY JUNE 2023 On 24 February 2012, Greece announced the invitations for the PSI. Approximately €206 billion worth of GGBs were invited in the exchange, whilst GGBs holders were offered the following for every €1,000 face value of existing GGBs: (i) €150 of EFSF 1y and 2y notes (cash equivalent); (ii) €315 of new GGBs, including 20 different series maturing from 2023 to 2042 with a step-up coupon structure; (iii) €315 of notional of GDP-linked securities; and (iv) short-term EFSF notes for any accrued interest. The new GGBs would be governed by English law, subject to the jurisdiction of English courts and contain negative pledge and cross-default provisions. Most importantly, however, they were made subject to a co-financing agreement with one of the EFSF facilities, which provided for a pro-rata redemption with the EFSF. This amounted to a face value ‘haircut’ of 53.5% and an implied NPV haircut of 74%. A 90% minimum participation threshold was set by Greece as a condition for the exchange. On 9 March 2012, the Greek government announced that 91% of the €177 billion Greek law-governed GGBs with the new CACs had been tendered, with 94% of those tendered accepting the exchange. Almost all guaranteed GGBs were exchanged. The acceptance of foreign law-governed GGBs was initially lower, but following two extensions the percentage increased significantly. Finally, GGBs of €199.2 billion face value participated in the PSI and were exchanged for €29.7 billion of EFSF notes and €62.4 billion of new GGBs. The exchange was successful, paving the way for the second rescue package by the official sector for Greece – this time through the EFSF rather than direct facilities of other EU members – and reducing the risk of a collapse of Greece and the eurozone as a whole. As is the case in every Greek tragedy, however, someone had to be sacrificed for the catharsis to occur. Undoubtedly, in the PSI drama, these were the Greek banks. With an immediate loss estimated to €38 billion as a result of their participation in the PSI, their regulatory capital ratios fell below minimum regulatory levels overnight. The Hellenic Financial Stability Fund, the investment arm of the Greek government, established in the meantime for supporting the recapitalisation and consolidation of the Greek banking sector with EFSF funds, had to step in and provide immediate support in order to avoid the banking licenses’ immediate revocation by the Bank of Greece (as at the time the ECB had not taken over the regulatory supervision of systemic banks). Three rounds of recapitalisation of Greek banks had to be completed following the PSI in 2013, 2014 and 2015 (involving further private sector involvement) so that the Greek banks could address the regulatory requirements triggered by the PSI, as well as a wave of NPEs and NPLs that was caused by financial crisis. Further, the sector underwent a massive consolidation with just five banking licenses surviving: four systemic and one non-systemic. The very fact that the Greek sovereign debt crisis was not triggered by the banking sector, as was the case in other sovereign debt crises, but rather by unfortunate fiscal policy and public The PSI reaffirmed that there are some key principles that must be followed and applied in all kinds of debt restructurings.
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