Banking Newsle er Y A N N O P O U L O S. In this newsle er

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1 Banking Newsle er Informa on on Greek Memorandum of Understanding and PSI Issue 3 In this newsle er A. New law on the approval of the Private Sector Involvement Liability Management Facility Agreement ( PSI LM Facility Agreement ) and the Memorandum of Understanding ( MoU ) The PSI LM Facility Agreement Amendments to The MoU of Economic and Financial Policies B. PSI LM Exchange Transac on A. New law on the approval of the PSI LM Facility Agreement and the MoU Law 4046/2012 on the approval of the Dra Financial Assistance Facility Agreement between European Financial Stability Facility, the Hellenic Republic, and the Bank Of Greece ( BoG ), the Dra MoU between the Hellenic Republic the European Commission ( EC ) and the BoG and other urgent March 2012 legal provisions on the decrease of the na onal debt and the rescue of the na onal economy was enacted on 14 February 2012 (the Law ). The Law includes the following parts (Annexes I-VI) in English (which is the official language) along with a transla on in Greek: (a) Financial Assistance Facility Agreement between European Financial Stability Facility ( EFSF ), the Hellenic Republic and the BoG ( PSI LM Facility Agreement -- Annex I); (b) Co-Financing Agreement between the Hellenic Republic as beneficiary member-state, the BoG as agent for payments made by the beneficiary member-state, as paying agent of the Bonds and as common paying agent, the EFSF, and Wilmington Trust (London) Limited ac ng as trustee of the bonds (Annex II); (c) ECB Credit Enhancement Facility Agreement between the EFSF, the Hellenic Republic and the BoG (Annex III); page 1

2 (d) Bond Interest Facility between the EFSF, the Hellenic Republic as beneficiary member-state and the BoG (Annex IV); (e) MoU between the Hellenic Republic, the EC and the BoG comprising (i) the Memorandum of Economic and Financial Policies; (ii) the MoU on Specific Economic Policy condi onality and iii) the Technical MoU (Annex V). (f) Le ers of Intent of the Prime Minister, the Minister of Finance and of the Governor of the BoG to (i) the President of the Eurogroup, the Vice-President of Economic and Financial Affairs and the Euro and the President of the European Central Bank ( ECB ) and (ii) the Interna onal Monetary Fund ( IMF ) (Annex VI). The PSI LM Facility Agreement General Subject to the terms and condi ons of the MoU and of the PSI LM Facility Agreement, the EFSF will make available to the Greek state an aggregate financial assistance of an amount up to Euro 30,000,000,000 ("Aggregate Financial Assistance Amount"). The purpose of the facility is to enable the Greek state to finance the voluntary bond exchange to be entered into between the Greek state and certain private sector investors, as described in the statement of the Euro Summit dated 26 October. The PSI LM Facility Agreement becomes effec ve following its execu on by all relevant par es, on the date on which certain condi ons precedent will have been fulfilled and the new Greek state bonds will have been issued. Interest, costs and expenses Interest shall accrue on the Aggregate Financial Assistance Amount during consecu ve 12-month interest periods at an interest rate to be set by the EFSF. On each scheduled date for the payment of interest, the Greek state shall pay, in cleared funds; to a special account at BoG (ac ng as Common Paying Agent ) an amount equal to the interest due and payable on such date and the Common Paying Agent shall pay such amount to the account designated to it by EFSF. In case of delay in any payment, the Greek state shall also pay default interest at a rate per annum equal to 200 basis points over the higher of (a) the Euribor rate applicable to the relevant period selected by EFSF and (b) the interest rate which would have been payable if the overdue amount had, during the period of non-payment, page 2

3 cons tuted Financial Assistance, as such term is defined therein. So long as the failure to pay con nues, such rate shall be refixed in accordance with relevant provisions of the PSI LM Facility Agreement. The Greek state shall bear all costs, charges and expenses, including legal, professional, banking or exchange charges incurred, in connec on with the prepara on,execu on, implementa on and termina on of the PSI LM Facility Agreement or any related document, any amendment, supplement or waiver in respect of the PSI LM Facility Agreement or any related document, including the costs and expenses payable by EFSF in rela on to the prepara on and issuance of funding instruments to finance the financial assistance provided thereunder. Events of default The PSI LM Facility Agreement provides specific circumstances, where EFSF may, by wri en no ce to Greece, cancel the facility and/or declare the aggregate principal amount of all financial assistance amounts made and outstanding under the PSI LM Facility Agreement to be immediately due and payable, together with accrued interest. Such circumstances include, among others, the failure of the Greek state or of the BoG to pay any amount of principal or interest in rela on to any Governing Law and jurisdic on The PSI LM Facility Agreement is governed by English law and the courts of the Grand Duchy of Luxemburg have exclusive jurisdic on on any dispute 6 financial assistance or any other amounts due under the Agreement on its due date, whether in whole or in part, in the manner and currency agreed in the Agreement; or circumstances where EFSF declares that the Greek state or the BoG are in default in the performance of any obliga on under the PSI LM Facility Agreement or the Co-financing Agreement on various grounds as set out therein. arising therefrom. However, EFSF reserves the right to ini ate proceedings before the courts of the Greek state or the UK. The MoU of Economic and Financial Policies Key elements of the financial sector reform strategy Assessment of capital needs All banks will be required to achieve a core er 1 capital ra o set at 9 per cent by the end of September 2012, reaching 10 per cent in June The BoG, with page 3

4 the support of external consultants, will undertake an assessment of banks' capital needs. This assessment will be based, inter alia, on the results from the BlackRock loan diagnos c exercise, the PSI impact, and the business plans banks have submi ed. In addi on, banks' capital needs will be determined on the basis of a requirement to maintain a per cent core er 1 capital ra o under a three year adverse stress scenario (Pillar II requirements). Based on these capital needs iden fied by the BoG, banks will revise their business plans and submit capital raising plans by the end of March Assessment of the banking sector At the same me, a strategic assessment of the banking sector will be carried out. In consulta on with the EC/ ECB/IMF, the BoG will conduct an assessment of each bank, using a set of quan ta ve and qualita ve criteria. The assessment will be complete by the end of March (proposed as a structural benchmark). Agricultural Bank of Greece ( ATE ) Recapitalisa on and resolu on ac ons Banks will be given me to raise capital in the market. Based on an assessment of their viability and capital raising plans, the BoG will communicate to banks, by the end of April 2012, specific deadlines to raise capital in the market. The deadlines to raise capital will be set Public support Banks submi ng viable capital raising plans will be given the opportunity to apply for and receive public support in a manner that safeguards private sector incen ves to inject capital, and thus minimizes the burden for taxpayers. Specifically, banks will be able to access capital from the Hellenic Financial Based on the ongoing work by the commissioned external audit firms, the Greek state will complete a study on how to address ATE. This study will illustrate the legal, opera onal, and financial aspects of the different solu ons and lay out the associated costs. for each bank on a case by case basis with a maximum dura on to the end of September 2012, taking into account the regulatory framework and the requirements set by the Hellenic Capital Markets Commission. Stability Fund ( HFSF ) through common shares and con ngent conver ble bonds. Greek banks will have business autonomy both de jure and de facto. The vo ng rights of the HFSF for the common shares it holds will be strictly page 4

5 limited to specific strategic decisions, unless the private par cipa on in the form of common shares is less than a given minimum percentage of the banks total capital needs. The shares and/or the vo ng rights acquired by the HFSF shall not be transferred or sold to any other state-related en ty in any form. Private shareholders will be given incen ves to purchase HFSF-held shares. A ministerial decree agreed in consulta on with the EC, ECB and IMF shall provide the technical details of the banks' recapitalisa on framework, embodying these principles, by the end of March See also below Enactment of Necessary Legisla on Recapitaliza on Framework. Resolu on measures Banks that do not submit viable capital raising plans and do not raise the capital needed to meet the regulatory requirements within the deadline set by the BoG will be resolved in an orderly manner and at the lowest cost to the state, in a way that ensures financial stability and which follows the overall strategic plan for resolved banking system assets. Resolu on op ons will include the tools available under the law such as, inter alia, purchase and assump on (transfer order), interim credit ins tu- on (bridge banks), and orderly wind down. Follow up measures In order to ensure that the system remains well capitalized, the BoG will conduct a new stress test exercise by end- June 2013, based on end-2012 data, using a methodology determined in consulta on with the EC/ECB/IMF. Enactment of necessary legisla on Greece will enact legisla on to support the strategy for bank recapitalisa on and resolu on. Some of the regula ons to be adopted (or that have already been adopted) concern: Capital adequacy requirements The banking law (3601/200) will be amended so as to enable the BoG to set new bank capital standards, and the BoG will introduce regula ons to gradually introduce the foreseen increases in Core Tier 1 requirements. Recapitaliza on framework The law regarding HFSF has already been amended (by virtue of Law 4051/2012) so as to allow the use of con ngent conver ble bonds and to page 5

6 provide for restric ons on HFSF vo ng rights for up to 5 years. The vo ng rights of the HFSF for the common shares it holds depends on the size of the capital injec on by private investors via common shares. If this injec on is below a given minimum percentage of a bank's total capital needs, the HFSF will have full vo ng rights. The HFSF shall hold its shares for a period of 2 years, with the possibility to extend for an addi onal 2 years for financial and market stability reasons. If instead this private injec on is larger than this percentage, the HFSF vo ng rights will be strictly limited to specific strategic decisions. In this case, the HFSF may hold bank shares for up to 5 years. Resolu on framework Greece will introduce a clear separa on of the supervisory, resolu on and restructuring func ons. In par cular, the legal framework shall vest resolu on responsibili es in a separate department of the BoG and restructuring responsibili es (pertaining to management of all temporary credit ins tu ons) in the HFSF. As regards interim credit ins tu ons, the BoG will con nue pursuing its financial stability role, notably via its supervisory authority, while the HFSF will con nue aiming at safeguarding its investments. The government will ensure that enough financing is available to provide for recapitalisa on and resolu on needs, through several stages to be decided mainly on the basis of recapitaliza on op on needs and requirement for ECB liquidity support. Moreover, the Greek state will enact legisla on in order to strengthen governance arrangements in financial oversight agencies, i.e. the HFSF, the Hellenic Deposit Investment Guarantee Fund and the BoG. With respect to the BoG specifically, in light of the BoG's responsibility for resolu on, restructuring, and supervision, the Greek state will revise the BoG Statute to provide for collegial decision-making at the level of execu ves (Governor and Deputy Governors) and ongoing accountability through internal oversight by nonexecu ves in the General Council. The Greek state will also revise the structure and rights of BoG shareholders to eliminate possible conflicts of interest in the BoG s public policy role (e.g. prohibi ng supervised ins tu ons from shareholdings and se ng a cap on the number of votes that each or related private shareholders can exercise). page 6

7 B. PSI LM Exchange Transac on General In the framework of PSI and subject to the consent of the bondholders, the exis ng Greek state bonds will be replaced by new bonds which will be issued by the Greek state and the EFSF. Law 4050/2012 on the rules for the modifica on of bonds, issued or guaranteed by the Hellenic Republic with the consent of the bondholders, which became effec ve on (the Greek Bondholder Act ) introduced a legal framework to amend the eligible tles. Based on the abovemen oned law, the Ministerial Council, upon the recommenda on of the Minister of Finance, decided, among others, to launch the procedure for the modifica on of the eligible bonds by the bondholders and authorized the Public Debt Management Agency ( ΟΔΔΗΧ is the Greek abbrevia on) to issue one or more invita ons from the Greek government. Through the four invita ons that were issued by the Public Debt Management Agency, bondholders of the eligible bonds specified therein are invited to decide, within a specified period, if they accept the modifica on of the eligible bonds, as proposed by the Greek state and in accordance with the procedure described in the law. The invita ons include, inter alia, terms relevant to: (a) the eligible bonds, (b) collec ve ac on clauses ( CACs ) for specific bonds and (c) other terms such as subdivisions of the bonds, grace period, currency, terms and methods of payment, repayment and repurchase, termina on reasons, nega ve obliga ons of the issuer (nega ve pledges), rights and obliga ons of the trustee ac ng for the bondholders, etc. With respect to CACs specifically, the invita on regarding certain Greek law bonds of the Greek state contains clauses which provide for the ability to amend the terms of the bonds without the consent of all holders. A modifica on proposed by the Greek state will be considered approved by the holders, if holders of at least 50% in aggregate principal amount of the securi es iden fied in the invita ons and the relevant Ministerial Council s Act par cipate in the modifica on process set out in the relevant invita on (whether to consent to or reject the proposed modifica on) (par cipa ng principal) and at least two thirds (2/3) of the par cipa ng principal consent to the proposed modifica on. See also below Minimum Par cipa on Condi on. A er the publica on in the Government Gaze e of the decision of the Ministerial Council ra fying the decision of the bondholders, the page

8 decision shall apply vis-à-vis any party, bind all holders of eligible bonds and shall supersede all contrary provisions of law or contractual terms. In case of exchange of eligible bonds, upon the registra on of the new bonds in BoGS, the eligible bonds exchanged for new bonds are automa cally cancelled and any right or obliga on derived therefrom are ex nguished. Minimum par cipa on condi on The Greek state will complete the exchange of validly tendered tles if at least 90 per cent of the aggregate principal amount currently outstanding of all tles subject to one or more parallel invita ons (the Overall Debt ), taken together has been validly tendered for exchange pursuant to each of the parallel invita ons by the expira on deadline, and all other condi ons to the invita ons have been sa sfied or waived by the Greek state. If at least 5 per cent but less than 90 per cent of the aggregate principal amount outstanding of the Overall Debt has been validly tendered for exchange pursuant to the terms of the invita ons, the Greek state, in consulta on with its official sector creditors, reserves the right to waive the minimum par cipa on condi on and proceed to exchange such validly tendered tles pursuant to the invita ons. If the Greek state has received tenders of certain designated tles for exchange and has obtained consents to modify said tles that upon acceptance or becoming effec ve, as applicable, would result in at least 90 per cent of the aggregate principal amount outstanding of the Overall Debt becoming either exchanged upon acceptance by the Greek state or subject to the proposed amendments in the relevant invita ons, the Greek state intends (subject to sa sfac on or waiver of certain condi ons) to put into effect the proposed amendments to the Greek law tles and/or the proposed amendments to one or more series of foreign law Greek state tles and/or the proposed amendments to one or more series of foreign law guaranteed tles (being series of such foreign Law Greek state tles and/or foreign law guaranteed tles in respect of which the proposed amendments have become effec ve), as applicable. If less than 5 per cent of the aggregate principal amount outstanding of the Overall Debt has been validly tendered for exchange pursuant to the terms of the invita ons, and the Greek state has not obtained consents to put into effect the proposed amendments with respect to certain designated securi es represen ng at least 5 per cent of the aggregate principal amount outstanding of the Overall Debt, the Greek state will not proceed with any part of the transac ons described in the invita ons. For obtaining copies or further informa on regarding the invita ons to the bondholders, you may visit the Web site greekbonds.gr. page 8

9 For further informa on, please contact: Nikos Kon zas: n.kon So ris Vlachos: Elena Papachristou: Vassiliki Lazarakou: For further informa on, please contact us directly ZEPOS YANNOPOULOS newsle 5, Katehaki Kifissias Ave., , Athens Greece Tel.: (+30) Fax: (+30) Established in 1893, Zepos Yannopoulos is one of the leading and largest law firms in Greece providing comprehensive legal and tax services to companies conduc ng business in Greece. All rights reserved. No part of this publica on may be reproduced or transmi ed in any form or by any means, or stored in any retrieval system of any nature without prior permission. Applica on for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the publishers. Full acknowledgment of author, publisher and source must be given. Nothing in this newsle er shall be construed as legal advice. The newsle er is necessarily generalised. Professional advice should therefore be sought before any ac on is undertaken based on this newsle er. page 9