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Greece Sets Out Plan to Help Banks Shed $83 Billion of Toxic Debt

Greece Sets Out Plan to Help Banks Shed $83 Billion of Toxic Debt

The Greek government has set out its blueprint for helping the country’s banks reduce a 75 billion euro ($83 billion) pile of toxic debt left over from the last recession.

The plan aims to speed up sales of non-performing loans by Greek lenders, repackaging them into securities with the state guaranteeing the safest portions. It’s based on a model used in Italy but unlike that program, the safest tranches of Greece’s NPLs will have a BB- rating — three steps into junk territory.

Those senior notes will be repaid first in a “waterfall” structure, according to an internal European Commission memo authorizing the program seen by Bloomberg.

Greece’s economic recovery is being hindered by the amount of bad loans held by banks, a legacy of the country’s debt crisis that forced it to seek multiple international bailouts.

After securing the approval of the EU’s executive arm, the government in Athens is now preparing a bill to launch the project. The program, known as Hercules, is likely to come into effect before the year end and contribute around 200 million euros annually to Greece’s public budget from the fees it generates, government spokesman Stelios Petsas said Tuesday.