As the financial crisis has shown, perceptions of credit risk move in waves, as steep and unpredictable as those in stockmarkets. On paper, Greeces fiscal weakness has been clear for years some would say decades. But the markets apprehension of this risk has fluctuated, more with investors whims than external events.
For companies in Europes frailest economies, this has made funding much more difficult. Few, so far, have been forced to the wall. But treasurers have needed to be ingenious and call on trusted relationships. Above all, they have had to pick their moments.
On the front line is the Hellenic Telecommunications Organisation, OTE. Greeces leading telecoms company is well known in the bond market and in 2008 was rated Baa1/BBB.
In February that year it was able to issue 2.1bn of three and seven year notes at 160bp and 195bp over mid-swaps finding 7.5bn of demand.
A month later Marfin Investment Group sold its 20% stake in OTE to Deutsche Telekom. DT does not guarantee OTEs debt, but the acquisition would prove vital to OTEs health as recession bit.
Though battered by the economic downturn, OTEs business is still on the road. It has 3.8m fixed line subscribers in Greece and 7.6m mobile customers, as well as 9.2m in Romania and 5.9m in Bulgaria and Albania.
In 2010, revenue fell 8% and Ebitda 20.5% but they were still 5.5bn and 1.75bn. The Ebitda margin is 37%, though profits fell 90% to just 40m, squeezed by asset writedowns, early retirement costs and fierce price competition from rival mobile providers Vodafone and Wind Hellas.
OTE is trying hard to cut costs, by offering staff bonuses to leave, cutting managers allowances, reducing overtime and paying lower rates and introducing a 40 hour week. Its debt is not excessive, at 5.3bn, with 1bn of cash on the balance sheet.
But investors have been deserting Greece. In April 2010, its government bond spreads soared as investors began to fear the state could not support its debt.
OTEs ratings were junked by Standard & Poors in March 2011 and Moodys in May. It is now B1/BB-.
As 2010 wore on and OTEs spreads deteriorated, debt maturities loomed. The 1.5bn three year bond from 2008 was due on February 14, 2011. Then in November comes a 650m bond sold in 2005.
There are 769m of loans due in 2012, and in 2013 1.2bn of bonds and 604m of loans.
OTE declined to be interviewed for this article, but a statement on its website gives a glimpse of its refinancing efforts in 2010. Banks on its 500m term loan and 350m revolving credit facility, due in September 2010, agreed to extend 89% of the debt for two years and 6% for one year.
Since the loans were signed in 2005, the margins are just 25bp and 27.5bp. In January, OTE drew the revolver fully.
OTEs breakthrough came on February 9, 2011, when it signed a new 900m syndicated revolving loan, with seven Greek banks supplying 390m and nine international firms the rest.
HSBC lent 80m, according to Dealogic; Barclays Capital, Crédit Agricole, Intesa Sanpaolo and Morgan Stanley 65m each; and BNP Paribas, Bank of America Merrill Lynch, Citigroup and Deutsche Bank 42.5m apiece.
The two year loan, extendible for one year, paid 500bp over Euribor. OTE said it would draw 600m, to repay part of the 1.5bn bond maturing just five days later.
The loan helped to unlock the bond market. In early April, OTE sold the first new Greek corporate bond for 17 months.
The 500m three year issue, then rated Baa3/BB, drew 1.8bn of demand from 195 investors all over Europe. Alpha Bank, BNP Paribas, EFG Eurobank, HSBC and Morgan Stanley priced it to yield 7.375% or 469bp over mid-swaps.
Bankers said some of the proceeds would reduce drawings on the new revolver, and that OTE already had other liquidity to redeem its November 2011 bond. Moodys said the April bond covered OTEs refinancing requirements throughout 2012.
The leads downplayed Deutsche Telekoms support, saying the bond had not been sold on that basis, even though its stake has been rising in chunks bought from the Greek government, and in July reached 40%.
Investors and the deals change of control put tell it differently. "The story is still intact about their Deutsche Telekom support, but the credit itself is pretty weak," said a German fund manager. "The underlying business is tough trying to get something done in Greece is difficult, and then there are the austerity measures. Who wants to put money into Greece at the moment?"
Standing behind OTE, however, is a big German company rated Baa1/BBB+, which in January gave it a 150m loan. More important are Telekoms public statements of support, such as by CFO Timotheus Höttges in August.
DT is convinced OTE can refinance itself independently, he said, but if it were temporarily unable to do so after 2013, when its next debt falls due, Deutsche Telekom would act as a lender of last resort at market rates, for as long as it retains management control.