It's Greek to me

Greece and investors who own its bonds have reached a tentative agreement to reduce the country's debt and receive a euro130 billion bailout.
The agreement announced Saturday and could become final next week. If it works as planned, it will help Greece remain solvent and help avoid a blow to the European financial system, even though banks and other bond investors will have to accept multibillion-dollar losses. If no deal is reached with creditors and Greece is forced to default, it could Europe's and possibly the world's financial markets.


Under the agreement, investors holding euro206 billion in Greek bonds would exchange them for new ones worth 60 percent less.
The new bonds' face value will be half of the existing bonds. They would have a longer maturity and pay an interest rate of slightly less than 4 percent instead of average interest rate of 5 percent on current bonds.
This would reduce Greece's annual interest expense on the bonds from about 10 billion euro to about 4 billion. Upon maturity, instead of paying bondholders euro206 billion, Greece will have to pay only euro103 billion.
Without the deal, which would reduce Greece's debt by at least euro120 billion, the bonds held by banks, insurance companies and hedge funds could become worthless. Many of these investors also hold debt from other countries that use the euro, which might also lose value in the event of a full-fledged Greek default. This is why the hope is investors will voluntarily accept a partial loss on their Greek bonds.

Private investors hold roughly two-thirds of Greece's debt, which has reached an unsustainable level — nearly 160 percent of the country's annual economic output. By restructuring the debt held by private investors, Greece and its EU partners are hoping to bring that ratio closer to 120 percent by the end of the decade. Without a deal the Greek economy would continue to falter.

Feb. 1 update-Hedge Funds brace themselves. talks on restructuring Greece's debt mountain still deadlocked, and the exit of one of more countries from the euro seen as a small but definite possibility.
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Nervous hedge funds managers are stress-testing their portfolios