Greece in Largest Ever Sovereign Debt Restructuring and Largest Ever Bond Exchange

April 25, 2012

Cleary Gottlieb has acted as international counsel to The Hellenic Republic in connection with its invitation, launched on February 24, relating to approximately €206 billion face amount of Greek bonds held by private sector holders.

Since July 2011, a dedicated team spanning eight offices has been international counsel to Greece on legal aspects of its external indebtedness, culminating in the announcement on February 24, 2012 of a liability management transaction. By April 25 approximately 97 per cent of the €206 billion Greek bonds invited to participate in the transaction had been exchanged for new Greek bonds and other considerations. This is both the largest ever sovereign debt restructuring and the largest ever bond exchange.

As a result of this liability management transaction, known as PSI (private sector involvement), holders of Greek bonds have provided in excess of €100 billion in debt relief to Greece and the average interest rates on Greece’s remaining private sector debt has been materially reduced. In addition to the PSI transaction, Cleary Gottlieb has acted as international counsel to Greece in its financing transactions with the EFSF, which involve debt facilities in excess of €150 billion as well as other transactions, such as the €35 billion securities purchase transaction between Greece and the ECB.

Our firm has been a pioneer in sovereign debt transactions for more than thirty years. The success of PSI was significantly enhanced by the use of collective action clauses, which have been promoted by Cleary Gottlieb since the 1990s, and specifically in the context of Greece in a 2010 paper co-authored by Mitu Gulati and Cleary Gottlieb partner Lee C. Buchheit. Another innovation in the PSI transaction is the use of a "co-financing agreement" used to link the new bonds issued by Greece to a portion of the loans made to Greece by the EFSF.

This engagement is the latest in a long line of high-profile sovereign debt assignments for our firm, which has represented clients in more than 30 countries around the world. In addition to Greece, the now largest-ever sovereign debt transaction, we are currently advising Iraq and Argentina – the second- and third-largest sovereign transactions, respectively – as well as Iceland in its debt matters.