The Treasury Department announced Wednesday it was selling $2.56 billion in 20-year bonds to the government of Mexico as part of an innovative effort to help solve that country's debt problems. Mexico will pay $492 million in cash for the zero-coupon bonds, so-called because they are sold at a deep discount from the face amount and pay no interest until they mature. The sale of the U.S. securities was the final step in an innovative procedure unveiled last December. Mexico sought to induce foreign banks to forgive a portion of their loans by offering, in exchange, smaller quantities of Mexican government bonds that would be backed by collateral consisting of U.S. Treasury securities. Banks were asked to bid for the bonds, offering to cancel their loans at a discount. Backers of the plan had hoped to reduce Mexico's debt burden by up to $10 billion, but when the bids were opened on March 2, the amount of debt reduction amounted to a disappointing $1.1 billion. The Mexican Finance Ministry rejected nearly half of the bids it received as insufficient. The bids accepted would retire $3.66 billion in debt at an average discount of 67.66 cents on the dollar, offering $2.56 billion worth of Mexican bonds in exchange. The $2.56 billion in zero-coupon bonds sold by U.S. Treasury on Wednesday will be used as collateral to back up the Mexican bonds.
