The next bond maturing on June 3, 2013 in the amount of €1.4 billion -- a large chunk of which is reputed to have been bought by international hedge funds over the last six months at prices ranging from 70-75 cents on the euro -- will be paid out at 100 cents on the euro in about ten weeks. Each depositor in a Cypriot bank, large and small, will be making a solidarity contribution toward that payment to bondholders.

Walking Back From Cyprus
Lee C. Buchheit
Mitu Gulati*

On Friday night, March 15, 2013, European leaders trespassed
on consecrated ground. They insisted that Cyprus impose losses --
euphemistically dubbed a “solidarity levy” -- on insured depositors with
Cypriot banks as a condition to receiving EU/IMF bailout assistance.
Entering Friday’s meeting, the leaders had four options on the table, none of
them pleasant:
(i) Give Cyprus a complete bailout (estimated to cost €18
billion).
(ii) Restructure the outstanding Cypriot bonds, €4.4 billion of
which are governed by Cypriot law and €3.8 billion by
English law.
(iii) Haircut excess deposits in the Cypriot banking system;
that is, deposits in excess of the €100,000 minimum
covered by the local deposit insurance scheme. These
represent about half of the total deposit base.
(iv) Haircut the insured deposits.
The European leaders chose options (iii) and (iv). Insured
depositors will suffer a 6.75% loss on their deposits; amounts in excess of
that level will be subject to a solidarity contribution of 9.9%. Holders of
Cypriot sovereign bonds will emerge unscathed. The next bond maturing on 
June 3, 2013 in the amount of €1.4 billion -- a large chunk of which is reputed 
to have been bought by international hedge funds over the last six months at 
prices ranging from 70-75 cents on the euro -- will be paid out at 100 cents 
on the euro in about ten weeks. Each depositor in a Cypriot bank, large and 
small, will be making a solidarity contribution toward that payment to 
bondholders.

http://ftalphaville.ft.com/files/2013/03/SSRN-id2235359.pdf