Brazil and its main creditor banks have agreed on guidelines this week for swapping $44 billion in loans for government bonds under a proposed debt-reduction agreement.
The guidelines call for creditors to exchange no more than 40% of the debt at face value into par bonds, which carry a below-market interest rate. At least 35% of the debt is to be exchanged for bonds at a 35% reduction in face value.
The country has been trying to get as many banks as possible to opt for discount bonds rather that par bonds because they require less collateral.
More Talks Will Be Needed
Despite the agreement with the 19-bank steering committee, Brazil can expect several months more of negotiations too get other creditors to accept the plan.
As of midweek, banks and other creditors had offered to exchange nearly 60% of the debt for par bonds, 20% for discount bonds, and the remainder for other types of bonds and new money.
Bankers estimate about one-third of the $44 billion is owed to U.S. creditors before writedowns. Most U.S. money-center banks have written off around 70% of their Brazilian loans.
At yearend, Brazil owed Citicorp $1.1 billion after writedowns, Chemical Banking Corp. $726 million, and Chase Manhattan Corp. $550 million, according to Keefe, Bruyette & Woods Inc.
Banks stand to book substantial profits and free up large reserves if they can exchange the loans for bonds and sell them into the secondary market.
Completion Seen by Yearend
Brazil and its creditor banks reached an agreement for reducing the country's debt load in July 1992, but have not yet implemented the accord.
In a statement released Wednesday night, Brazilian Finance Minister Fernando Henrique Cardoso and Citibank vice chairman William R. Rhodes said they expect to complete the agreement by yearend.
Brazil needs to purchase about $3.2 billion in U.S. Treasury securities to collateralize the deal.