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Greek bond swap begins as Germany voices doubts over bailout

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posted on Feb, 24 2012 @ 06:34 PM
So, what are the implications, or repercussions, or risks here? Should they fail to secure at least 75% private bond holder agreement, the project fails, yeah? Should they secure at least 75% private bond holder agreement, what is stopping other distressed debt-laden European countries from also receiving favorable debt lowering restructuring of their sovereign bonds? In any case, what else could go wrong or otherwise trigger a CDS event in the European sovereign bond market?

UK Telegraph

Athens has launched the biggest sovereign bond restructuring in history to cut its debt by €107bn (£91bn) – amid warnings from Germany that even if it were successful, there were “no guarantees” Greece could be rescued.

The Hellenic Ministry of Finance on Friday released the highly anticipated offer document, firing the starting gun on a colossal effort to find Greek bondholders and persuade them to participate in a €206bn debt swap. Athens needs bondholders to agree to the deal within days as part of its effort to unlock the €130bn bail-out funds needed to avert default on March 20.

Wolfgang Schaeuble warned that the bailout, which was agreed late on Monday night, might not work. In a letter to German politicians, the finance minister said: “It may also not be the last time the German Bundestag will have consider financial aid to Greece. However, the chances of success with alternatives appear to me to be significantly lower at the current time.”

Bondholders will be asked to voluntarily take a 53.5pc hit on their bonds by swapping them for new instruments worth 46.5pc of their current value.

On Thursday night the Greek parliament approved new collective action clauses (CACs) for the deal, which will make the acceptance of the tender by the majority of bondholders automatically binding on the others.

Charles Dallara, managing director of the Institute of International Finance (IIF), who represented the private creditors, said he was “quite optimistic” that the deal would be approved. He said there was no decision so far to put the CACs into effect.

Analysts said the deal may trigger the payment of credit default swaps (CDS), the complex financial instruments that investors bought to insure their sovereign bonds, even if the swap is not declared a default by rating agencies. Ahead of the bond swap, Credit Suisse said: “We continue to expect a non-voluntary debt restructuring and for it to trigger CDS.” The analysts added: “A debt restructuring/debt exchange is not an event of default but may be a CDS credit event.”

posted on Feb, 24 2012 @ 08:03 PM
Great! now what the F is a CDS rigger event?
What would be the result of it?
Are these bonds not held by private people too?If the big banks go for it, the little guys who bought savings bonds are screwed!
What if that is the total retirement fund?
Man a hit like that could trigger all kinds of insane behavior......

posted on Feb, 24 2012 @ 09:03 PM
reply to post by surrealist

Because the CAC will be triggered .. I'm certain they wouldn't even attempt it if they didn't have at least 50% of the bond holders inline to accept the cuts. Many banks no doubt will get some form of payment from their host nations central banks (outside the ECB) and within the ECB I'm sure concessions are being made.

But I think it comes down to what is "private" .. Technically Government bond holders are excluded (who cannot buy CDS issues on government debt because they have no reserves) but whether or not Central Banks such as the ECB are considered "private" is not clear. Neither is the actions of the Greek Pension Fund which holds a ton of Greek debts .. technically it's private, but surely there is a conflict of interest.

American banks are not that exposed.. so it comes down to European Banks .. mostly German, French and British banks.

And even if the private banks by simple majority except the swap .. there will be attempts at collecting CDS payments because technically, unless they agree to the swap or agree to the CAC (which is a mandate) then it triggers a technical default by Greece and triggers the CDS payment.

Which given that we've been expecting Greece to collapse.. every bank in the World is either buying CDS issues on their own Greek Debts, as well as CDS issues on everyone elses Greek debt. If I were an investment manager at say Société Générale, I would make sure I have my debts covered. But I'd also buy up CDS contracts on every other banks Greek holdings.

So we know the Greek CDS claims would be somewhere around 30ish billion Dollars.. but of course.. there is no actual way to know to size of the derivatives market. The estimates for Lehman Brothers for instance was excessively under estimated.. and the total estimates for CDO packages was so underestimated it was a matter of complete and blatant stupidity on the SEC's part.

I thinks .. personally, my opinion .. that Greek is small. A small country.. with a small amount of debt.. with a small economy. IF the ECB, IMF, FED and European Governments didn't think that Greece would be cataclysmic .. they wouldn't have gone through the years of BS trying to get Greece turned around, especially when they had to of known Greece could never be fixed. So they are terrified of Greece collapsing in an "unorderly" way.

Which says to me they expect the private financial ramifications would be ........ extreme. Far larger than the anticipated $25b CDS claims, or the projected capital losses of Greek debts (which in total is incredibly tiny compared to the bank bailouts...)


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