Greek Cabinet To Sign Off Debt Write-Down

ATHENS -- Greece's cabinet is due to meet at midday Friday to sign-off on a EUR100 billion debt write-down for the country that is part and parcel of a fresh multi-billion euro rescue plan Greece is seeking from its international creditors.

The cabinet will convene at 0930 GMT, according to a statement by the prime minister's office, and will also debate further measures Greece must take to implement the reform and austerity program demanded by those creditors.

The cabinet meeting comes one day after Greece's parliament approved legislation to implement the debt deal and which includes a controversial measure to strong-arm investors into the deal.

Specifically, the legislation retrofits outstanding Greek bonds with so-called collective-action clauses, or CACs, aimed at forcing losses on bondholders who may resist what is being billed as a "voluntary" debt restructuring.

Earlier this week, euro-zone finance ministers approved a fresh EUR130 billion bailout for Greece and the debt-restructuring program. The two deals are linked: Greece's European partners demanded that the country proceed with a debt restructuring before they would approve the new loan.

To secure that loan, Greek lawmakers are also scrambling to pass further cutbacks--ranging from pension cuts to lowering the minimum wage to reductions in defense and healthcare spending--by the middle of next week to meet the demands of the country's European partners and the International Monetary Fund.

Under the terms of the debt deal, Greece's private-sector creditors will waive 53.5% of the principal on the bonds they hold by swapping their old bonds with new ones, worth less than half the face value of the original bonds and carrying lower coupons. The deal aims to erase as much as 107 billion euros from Greece's sovereign debt burden and bring its debt ratio down to a more sustainable 120.5% of GDP by 2020 from more than 165% now.

European Union leaders will meet March 1-2 at a summit to give the final nod to the deal.

The Greek government is aiming for a minimum participation of least two-thirds of bondholders in the planned debt exchange, but there are hopes that the participation rate may reach 85% or more.

The public offer for the debt swap will be formally launched later Friday and will run for two weeks. By March 9, according to a government official, Greece will determine whether the take-up rate from investors is enough for the debt deal to proceed. If so, the actual exchange of the new bonds for the old will take place March 12.

Depending on the participation rate, Greece will then decide whether to activate the CACs to rope in any holdouts--a move that risks triggering default insurance contracts on Greek government bonds.

Credit default swaps are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.

The new bonds issued by Greece will be governed by English--rather than Greek--law, because Greek lawmakers won't be able to review the legal terms of the deal. If the bonds were governed by Greek law, it would be easier for the Greek legislature to pass a law that simply amends the bonds.