Decision day for 2nd Greek bailout, financing gaps remain

By Luke Baker
BRUSSELS (Reuters) – Euro zone finance ministers are expected to approve a second bailout for Greece on Monday, a move they hope will draw a line under months of turmoil that has shaken the currency bloc, although there is work to be done to make the figures add up.
Diplomats and economists do not expect the package to resolve Greece’s economic problems: that could take up to a decade or more – a bleak picture increasingly apparent to several thousand Greeks who demonstrated on Sunday against seemingly endless austerity measures.
The ministers still need to agree new measures to square the numbers, given the ever-worsening state of the Greek economy. But they hope agreement on Monday will help restructure the country’s vast debts, put it on a more stable financial footing and keep it inside the single currency zone.
Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro programme, including a debt sustainability analysis critical to the IMF.
While there is still scepticism in Germany and other countries that Greece will be able to live up to its commitments – including implementing 3.3 billion euros of spending cuts and tax increases – officials said momentum was building for approval of the deal.
“At the moment it appears it will go exactly this way,” Austrian Finance Minister Maria Fekter said on Sunday when asked in a TV interview if the package would be approved. “I don’t think there is a majority to go a different way because a different way is enormously arduous and costs lots and lots of money.”
A euro zone official in contact with junior ministers involved in the Sunday conference call said that, while there were still gaps to be filled, they were not so large that they risked derailing the whole process.
“I don’t see anybody wanting to be responsible for pulling the plug on the deal at this late stage,” he said.
“The gut feeling is that this is going to go through – everyone feels the pressure this time to deliver,” he said, indicating that the Netherlands, Finland and Germany, which have been the most critical of Athens‘ ability to commit, looked likely to come on board if the financing gaps could be closed.
GREEK ANGER UNABATED
Several thousand Greeks demonstrated on Sunday against punishing austerity measures to reduce their country’s debt, on the eve of the make-or-break talks.
Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as about 3,000 demonstrators massed on the capital’s central Syntagma square.
Riot police shielded the national assembly, braced against a repeat of riots a week ago that saw buildings torched and looted across downtown Athens after a much larger rally involving tens of thousands.
Under one crucial element of the deal, Greece will have around 100 billion euros of debt written off via a restructuring involving private-sector holders of Greek government bonds.
Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70 percent reduction in the value of the assets.
The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.
The vast majority of the funds in the 130-billion-euro programme will be used to finance the bond swap and to ensure that Greece’s banking system remains stable: 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, 23 billion will go to recapitalise Greek banks.
A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in.
The overall objective is to reduce Greece’s debts from 160 percent of GDP to around 120 percent by 2020 – the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.
MEETING THE TARGET
The focus of discussion in Sunday’s conference call – and the issue expected to dominate the finance ministers‘ meeting on Monday – was what “around 120 percent” means in practice.
A debt sustainability report delivered to euro zone finance ministers last week showed that under the main scenario, Greek debt will only fall to 129 percent by 2020.
The IMF has said if the ratio cannot be cut to around 120 percent, it may not be able to help finance the Greek programme.
U.S. Treasury Secretary Tim Geithner urged the International Monetary Fund to support the programme.
“This is a very strong and very difficult package of reforms, deserving of support of the international community and the IMF,” Geithner said in a statement on Sunday.
As well as working to get the number down, there are moves to convince members of the troika that a debt level of 123-125 percent in 2020 would still be sustainable.
“If we can get it down to 123 or 124 percent, I think everyone’s going to be okay with that,” the euro zone official said after the Sunday conference call. “Everyone will find a way to tweak the numbers.”
A number of measures, including restructuring the accrued interest portion or reducing the “sweeteners”, are being considered to move the 129 figure closer to 120, a euro zone official familiar with the negotiations said.
There are also discussions about marginally lowering the interest rate on 110 billion euros of bilateral loans already made to Greece in May 2010 – the first package of support – to lighten the financing burden on Athens.
Central banks could help too.
The ECB is weighing up whether to allow Greek bonds held in euro zone central banks’ investment portfolios to be subject to the same writedowns private investors are set to take, central bank sources told Reuters on Friday.
The central banks hold around 20 billion euros of Greek bonds in their traditional investment portfolios and the ECB holds about double that amount from its emergency bond-buying programme. It has also signalled it could forego the profits made on the latter at some point.
“All the discussions I will have … until Sunday night will try to move the figure nearer to the target,” Luxembourg’s Jean-Claude Juncker, who will chair Monday’s finance ministers’ meeting, said on Friday, referring to the 120 figure.
If the finance ministers do succeed in reaching an agreement on Monday, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.
But no one is pretending it will end Greece’s problems. Figures last week showed its economy shrank 7 percent year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.
The troika, which is responsible for monitoring Greece’s reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground in Athens as part of the second package.
Already there is concern that at any one of those reviews of the new programme – if it is approved on Monday – Greece will be found to be behind, especially if GDP continues to slump.
That will again raise the threat the country will have to default if it cannot meet its obligations, and invite questions about its ability to remain in the euro zone.
(Additional reporting by George Georgiopoulos, writing by Luke Baker and Mike Peacock, editing by Tim Pearce)
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Quiznos Completes Restructuring of Debt and Strengthens Financial Position

DENVER, Jan. 24, 2012 /PRNewswire/ – Quiznos, one of the nation’s premier quick-service restaurant chains and pioneer of the toasted sandwich, today announced that the Company has successfully completed its previously announced financial restructuring on an out-of-court basis. The agreement eliminates one-third – or approximately $300 million – of the company’s outstanding debt, and provides a significant infusion of $150 million in new equity from Avenue Capital Group, a global investment firm, to position Quiznos for future growth.
“Improving our balance sheet and putting our capital structure issues behind us are major steps forward to strengthening the Quiznos brand and our customer experience,” said Greg MacDonald, Quiznos Chief Executive Officer. “We look forward to working alongside the Avenue Capital Group team and appreciate the support of all of our lenders during this restructuring process. Along with our dedicated franchise owners and employees, we can now focus primarily on the customer experience and our fresh, high-quality products. This is an exciting time for all of us here.”
Following the successful closing of an exchange offer launched by Quiznos on December 23, 2011, Avenue Capital Group has become the majority owner of the Company through its $150 million equity infusion and the conversion of its debt to equity.
Marc Lasry, CEO of Avenue Capital Group, said, “We are excited to be part of the Quiznos team and look forward to partnering with management in the weeks and months ahead.”
One hundred percent of the aggregate principal amount of the first- and second-lien loans were tendered in the exchange offer. The holders of approximately $650 million in first-lien loans were repaid $75 million in cash and the maturity of the balance of their loans was extended until the five-year anniversary of the closing. Certain lenders also exchanged approximately $150 million of their existing first-lien loans for new second-lien loans, and holders of approximately $225 million of second-lien loans exchanged their loans for a pro rata share of 40 percent of the new equity of the recapitalized Quiznos. In addition, the Company received significant concessions from certain other creditors and stakeholders.  Former equity owners Consumer Capital Partners facilitated the restructuring process and provided certain concessions to allow the restructuring to be completed out of court. 
Quiznos’ financial advisor for the restructuring was Moelis & Company and its legal advisor was Paul, Weiss, Rifkind, Wharton & Garrison L.L.P.  Vinson & Elkins L.L.P acted as the company’s financing counsel.  The financial advisor for Avenue Capital and certain other lenders was Lazard and the legal advisor was Akin Gump Strauss Hauer & Feld LLP.  The financial advisor for first-lien lenders was Blackstone Advisory Partners L.P. and the legal advisor was Willkie Farr & Gallagher LLP.
 About QuiznosNow in its 30th year, Denver-based Quiznos is a national chain designed for today’s busy consumers who are looking for a tasty, freshly prepared alternative to traditional fast-food restaurants. Using premium ingredients, Quiznos restaurants offer creative, chef-inspired recipes for sandwiches, soups and salads.
CNN Money ranked toasty sub pioneer Quiznos as the No. 2 most popular franchise of the past decade in 2010. In 2009, Quiznos’ Toasty Torpedoes® earned a spot as one of the top 10 new product introductions from the Most Memorable New Product Launch Survey. Also in 2009, QSR Magazine ranked Quiznos No. 19 overall in its Top 50 Chains in system-wide sales. In October 2007, Quiznos was recognized for leading the QSR industry in wait time performance by the Mystery Shopping Providers Association’s (MSPA) 2007 Wait Time Study. In May 2007, Zagat’s consumer surveys listed Quiznos in the top 5 for Top Food, Top Facilities, Top Service and Top Overall, ahead of its direct competitors. For further information, please visit www.quiznos.com.
About Avenue Capital GroupAvenue Capital Group is a global investment firm focused on undervalued opportunities in the private and public debt, equity and real estate markets in the U.S., Europe and Asia.  The firm is headquartered in New York, with offices in London, Luxembourg and Munich, and five offices throughout Asia.  As of November 30, 2011, Avenue manages approximately $12.1 billion of assets under management, on behalf of a sophisticated global base of institutional investors, the majority of which is pension funds, and also includes family offices, foundations, insurance companies and sovereign wealth funds.  Avenue was founded in 1995 and draws on the skills and experience of approximately 300 employees worldwide.
Forward-looking StatementsThis press release contains “forward-looking statements,” within the meaning of the federal securities laws that involve risks and uncertainties. All statements herein that address activities, events, conditions or developments that the Company expects or anticipates will or may occur in the future are generally forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, achievements or transactions of the Company and its affiliates to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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