On Monday the Government Council of Economic Policy issued a statement regarding the imminent bank recapitalization and the participation of the Hellenic Financial Stability Fund. Further details on the terms and conditions of the Greek banks’ contingent convertible bonds have started to emerge.

According to the plan, the HFSF will provide state aid in order to recapitalize the country’s four systemic banks, by buying a mix of CoCos (75%) and new shares (25%) which the lenders will issue. These bonds will reportedly be perpetual and carry an 8% annual coupon. They will be fully discretionary and paid in cash or shares.

Maintaining these bonds will, however, be costly, with an annual servicing cost of 80 million euros for each 1 billion euros of aid. Should the bank miss two payments for the annual coupon – though not necessarily consecutive – the CoCos will be converted into shares. In this case, the number of converted shares which the HFSF will received will be determined by dividing 116% of the nominal value of outstanding bonds with the conversion price. For the first seven years the bond interest will be equal to the current discount rate.