After a decade of economic and political instability, Bulgaria, like much of eastern Europe, is at last showing strong economic results. In addition, the Black Sea country has improved its external debt profile by converting Brady Bonds into Eurobonds, via an online auction.

Bulgaria recently completed a swap of Brady Bonds into longer-term Eurobonds, its second one this year. What were the benefits of these transactions for the Bulgarian government?

As a result of the exchange offers, Bulgaria was able to release collateral, reduce exposure to the dollar exchange rate and to interest-rate fluctuations, lengthen the repayment period and lower debt-service costs over the next 10 years. In addition to improving Bulgaria’s external debt profile, the transactions increased investors’ interest in Bulgarian debt, which, combined with decreasing risk premiums, should lead to lower financing costs from international markets in the future.

At a time when Bulgaria is seeking European Union and North Atlantic Treaty Organisation membership, the success of these transactions reinforced the country’s position as an attractive and innovative international player. These were very important transactions for the current Bulgarian government, which, since it was elected in June 2001, has undertaken an active debt-management strategy.

By conducting a successful exchange, Bulgaria was able to shed some of the stigma of debt-service problems that surrounds Brady Bonds. The Brady Bonds were issued by Bulgaria in 1994 as part of a sovereign debt restructuring, following commercial debt service problems that forced the country to declare a moratorium on its principal and interest payments.

Brady Bonds, named after former US Treasury Secretary Nicholas Brady, are dollar-denominated debt issued by emerging market countries to restructure commercial bank loans in default.

The exchange offers were conducted via the internet, a first of their kind in Europe. How did this benefit investors?

The invitations to investors to tender their Brady Bonds in exchange for dollar or euro-denominated bonds due 2015, were structured as modified Dutch auctions and conducted via secure internet websites maintained by JP Morgan and Schroder Salomon Smith Barney, the joint lead managers. The minimum prices for the new bonds were set by Bulgaria, while investors were invited to submit competitive or non-competitive offers through electronic letters of transmittal.

Enabling investors to communicate their offers electronically, the internet-based platforms allowed for real-time processing of bids, thus providing faster and more-efficient results. The internet structure was based on an exchange offer conducted by Peru and was the first exchange offer of its kind conducted via the internet in Europe.

With more and more services being provided by the internet, conducting exchange offers via this channel is a natural step forward. It is highly likely that there will be more to follow this one.

Have emerging market countries in eastern Europe been more active in the international capital markets recently?

Despite the general slowdown in the world economy, the eastern European emerging market countries that are able to translate economic and political reforms and prudent fiscal policy into increased GDP growth and stronger overall economic performance, find it easier to access the international capital markets.

Bulgaria, which has recently shown strong economic results after rebounding from the economic and political crises which plagued it for most of the 1990s, completed a e250m Eurobond offer in November 2001, in addition to the two exchange offers. Similarly, Ukraine, which has shown stronger economic performance since 2000, completed a $26m Eurobond issue this month, the first for Ukraine since 1997, as well as a follow-on exchange offer to its 2000/2001 commercial debt restructuring.