Greece threatens to default on bondholders who do not take part in a 206 billion euros debt restruct

Ooooooh this could get interesting. I suspect some rabbit will be pulled out of some hat somehow. Either that or the situation is going to get hostile and acrimonious, which would provide an entertaining set for a reality tv show. Or they could just default on these bondholders, triggering goodness knows what.

Athens Issues Threat to Bond Holdouts

Greece has threatened to default on any of its bondholders who do not take part in a 206 billion euros debt restructuring that officials believe is key to returning Athens to solvency, a move that turns up the heat on potential holdouts ahead of a deadline on Thursday.

The Greek public debt management agency said in a statement Athens “does not contemplate the availability of funds” to pay private investors who hold on to their bonds once the restructuring occurs. The transaction is projected to wipe 100 billion euros from Greece’s debt pile, but 95 percent of bondholders must participate for that target to be reached.

“There is no commitment not to pay, but there is a threat,” said Charles Blitzer, a former senior IMF official. “If you don’t maximise participation, you’re asking for more stress in the programme or more [bailout] money from the official sector.”

The threat is particularly aimed at 14 percent of investors who own Greek bonds issued under international law. The remaining 86 percent, who own 177 billion euros in Greek-law bonds, were also warned that Athens would use new legal provisions, called collective action clauses, to force the deal on holdouts. That would almost certainly trigger credit default swaps, a form of insurance that could prove more lucrative for some holdouts but could lead to renewed market uncertainty.

A Greek debt restructuring would mark the first time in more than 60 years an advanced economy has defaulted on its obligations and would be a new nadir in the two-year long euro zone crisis.

Thursday, March 8, 20:00 GMT is the deadline.

Greece needs 75% of bondholders to accept the swap so the second bailout to come into effect.
Greece needs 90% of bondholders to accept the swap so the second bailout to come into effect AND work as intended.

Up until now, only 39.3% of bondholders had agreed to the swap.
www.bbc.co.uk...

If 75 % of bondholders do not agree to swap, Greece will most likely default.

Passage by vote does'nt sound likely does it.This is bad.

You gotta wonder if that's the number of bondholders that have CDS written against the Greek debt they hold. The CDS on Greek debt isn't the derivative bomb that will bring the whole house of cards down, but it could set some dominoes falling if there are some writers that can't pay. Here's the thing though institutions purchase CDS (basically insurance on debt, but not because it isn't regulated like insurance) to insure against default, what happens when it's pretty obvious that default has occurred, like in Greece, and the body that determines when CDS pay ( a cabal of banks in this case) says no default has occurred? Shouldn't that make any CDS held on any balance sheet worthless?

MY bet is those not taking the haircut on Greek debt are betting CDS will pay, this time anyway. They are probably right, this time anyway. No way in hell any of the CDS on Spain or Italy pay out when it is there turn though.

If i was a bond holder, i would cover my losses by purchasing CDS and hope for a default, i bet you thats what alot of these bond holders are doing

How about that? My thread on Greece could default within hours was simultaneously applauded by one mod while thrown into the trash bin by another mod?

It has just been announced on Norwegian news today that the EU have been selling or forcing Greece to buy military equipment for 1 billion euros. While they have been discussing this crisis. It is speculated that Greece had to buy the military equipment to get good will from the EU.

euobserver.com...

BRUSSELS - Official figures show that EU countries sold Greece over €1 billion of arms at the same time as negotiating its first bail-out back in 2010.

France was by far the biggest seller, with a €794 million aircraft deal, according to recently-released European Council data on arms licences granted by member states. It also sold €58 million of missiles and €19 million of electronics used for aircraft countermeasures and target acquisition.

Pro-austerity advocates the Netherlands and Germany together sold almost €90 million of mostly electronics and ground vehicles. Italy sold €52 million of rifles and aircraft parts, while Spain sold €33 million of military-grade chemicals.

Originally posted by camaro68ss
If i was a bond holder, i would cover my losses by purchasing CDS and hope for a default, i bet you thats what alot of these bond holders are doing

lol, I like that
Tomorrow will be a nail biter but in the end they will pull this off, they always seem to.
Has anyone seen the yield on 1 year Greek bonds.....1100%....that is jaw dropping.

brill

reply to post by surrealist


Your thread was 'reopened' by gwampo here.

Originally posted by brill

Originally posted by camaro68ss
If i was a bond holder, i would cover my losses by purchasing CDS and hope for a default, i bet you thats what alot of these bond holders are doing

lol, I like that

Tomorrow will be a nail biter but in the end they will pull this off, they always seem to.
Has anyone seen the yield on 1 year Greek bonds.....1100%....that is jaw dropping.

brill

How on earth is that sustainable????

I don't think they will pull this off. Forgive me if I'm misunderstanding this, but as far as I can make out from this blog by John Ward, Greece has to default/exit the EZ to save Germany and the Fiscal Pact.

Since the 2007 financial crisis, huge sovereign debts have been run up with the ECB: a year on from the figure he’d been shown, the sums owed to the Bundesbank had zoomed to €498 billion….a circa 65% increase in one year. During any period of debt crisis, this sort of stuff will happen; however, should the eurozone fall apart, or Greece and/or others leave, the bad debt will be left behind. As Hans-Werner Sinn sums up: “We’re caught in a trap. If the euro breaks apart, we’re left with an outstanding balance of nearly €500 billion, owed by a system that no longer exists.”

If Greece gets its bailout and stays in the eurozone, it will be part of the Fiscal Union. By then, nobody will be able to get out. The BundesCourt has ruled against ESM, but a central tenet of FiskalPakt is that it must boost the ESM ‘firewall’….against contagion from Greece – one of its members. The Berlin Government will be in breach of its constitution if it so much as signs the ESM in the summer. So a Fiscal Union ‘infected’ by Greek problems will be far more open to further disasters…and lacking money to address them. The Karlsruhe Court can be ignored for a time….but the Greek reality cannot. Greece must be allowed to default and leave the eurozone….otherwise the Fiscal Union will be at risk. And if that Union fails, so will Germany’s finances. There will be nothing left in Europe but the rubble of Babel’s Tower of Hubris.

From an earlier blog post by John Ward:

But now here is a final twist in the tale: there are a further 29 billion euro’s worth of debt on top of the 177 billion NOT subject to Greek Law…ie, they can’t be compelled by CACs. That’s another 8% cert holdout. 8 + 4 = 12%. So to get 88% acceptance, Athens must persuade everyone else to buy-in without CACs. That simply isn’t going to happen. The bottom line is that (a) even based on what we know, Venizelos can’t reach 90%. If he does, I simply won’t believe it. And (b) extracting the non-Greek-Law holders who are Hedgies – it’s reckoned to be about 70% – that means only just over 13% of the remaining Hedgies and other flotsam under Greek Law would have to say no to push the level below 75%.

As well as this little gem, those bondholders may not be as 'burned' as they thought.


Very interesting reading ... I guess we'll know either way in the next few days.


ETA: All the guys n gals at the ECB, all together now .. We're caught in a trap, I can't walk out, because I looooove you too much baby ....

DSW advised to reject the Greek offer.

WSJ article for a better translation.

The commitments from the steering committee members to the deal come even as German investor lobby group DSW Monday recommended that private-sector bondholders reject the proposed deal to exchange Greek bonds. Because the offer exchanges existing bonds for new 30-year bonds, holders of bonds maturing in 2012 would forgive significantly more than those with longer-term paper, DSW said. "We especially advise investors whose holdings will mature shortly to reject the offer," DSW said in a statement. DSW said the offer should only target investors who, for safety reasons, want to reduce risk and whose bonds will not mature in the short term. The organization says the risk of rejecting the offer is manageable. An approval rate of between 75% and 90% of outstanding nominal share capital will likely make the exchange mandatory, investors who decide against the exchange will be treated as if they have consented and lose nothing, DSW said. If the acceptance rate is about 90%, the exchange will be voluntary, so those who hold bonds maturing this year and have rejected the offer would be paid at face value.

DSW is an umbrella organization for investment clubs in Germany, and has about 25,000 members.

For some reason I'm thinking that the Germans are looking for the lesser of 2 evils here, take the loss if Greece defaults, hence advising investors to reject the deal, or take a MEGA loss if Greece stays in the EZ and eventually brings down the whole house of cards leaving Germany holding all the debt.




ETA:

No, I’m arguing they (and the Americans) face two evils: 1. A smallish bad debt from Greece (on which you can save 130bn euros if you cut the rope). 2. A mega bad-debt and an unstable fiskalunion if you leave Greece in. Looked at that way, it’s unpalateable – but a no-brainer. I think the whole thing will melt down either way, but the article was an exercise in deductive logic rather than reality. Sometimes, it is necessary (albeit very painful) to get into the eurocrat mindset.

From the 'com ments' section of the article.

Looks like I did understand the article after all.

Originally posted by brill

Originally posted by camaro68ss
If i was a bond holder, i would cover my losses by purchasing CDS and hope for a default, i bet you thats what alot of these bond holders are doing

lol, I like that

Tomorrow will be a nail biter but in the end they will pull this off, they always seem to.
Has anyone seen the yield on 1 year Greek bonds.....1100%....that is jaw dropping.

brill

1,100%.... crazy. Think about it. if greece tells me to take a 70% hair cut or else you get nothing. Ill tell them to pound sand and bet against them with CDS. ( credit default swaps) who wouldnt

49 min until dead line.....

20.00 Greek debt swap deadline has arrived. Rumours are the participation rate was more than 90pc, meaning Greece will meet criteria to get another bail-out. Official announcement on the result of PSI talks and Collective Action Clauses expected tomorrow.

19.55 Greece's SKAI TV is reporting that PSI participation has passed 90pc, meaning €107bn will be slashed off debt. Into the last five minutes.

Debt Crisis: Live

Looks like they did it, but this is still faaaaar from over.

So now that investors have accepted a haircut, then there's no default, because they've accepted it voluntarily?

So then, if this true and Greece has just accomplished what is apparently the biggest debt restructuring in history, what's to stop other countries from exercising the same?

ETA I wonder if the rating agencies will have anything to say on this?

reply to post by surrealist


The European Fiscal Compact will stop them. Why do you think they want it ratified ASAP

So i guess everything is rainbows and skittles again????

Im getting tired of waiting for the world to end as we know it

Originally posted by surrealist
How about that? My thread on Greece could default within hours was simultaneously applauded by one mod while thrown into the trash bin by another mod?

I'd be proud of that.

--

On topic.

So it's seem likely the default is imminent then?

www.bbc.co.uk...

The Greek government has indicated that it has secured sufficient backing for a debt swap deal that will enable it to avoid defaulting on its debts.

A Greek official told the BBC that more than 80% of bondholders had agreed to the plan, above the threshold required for Athens to be able to push through the deal.

Well I guess this answers my question, at least partially...

Greece in last ditch scramble to avoid default

Greek politicians rounded on their own pension providers in a nail-biting scramble that secured the biggest bond restructuring in history. But it was still unlikely to be enough to avoid default.

Officials in Athens estimated that between 75pc and 80pc of private creditors had accepted the €206bn (£173bn) bond swap shortly before the 8pm GMT deadline. The level is enough for the deal to go through, but only if the government uses its controversial Collective Action Clauses (CACs).

Ratings agencies have warned they will declare a default if Greece activates the CACs, which allow the government to impose the deal on the remaining bondholders. The CACs will be used if the take up falls below the desired 95pc level but above the required 66pc.

The International Swaps and Derivatives Association (ISDA) is poised to convene again to decide if the vast restructuring amounts to a "credit event" that should trigger billions of euros of credit default insurance.

Athens said the figures would be revealed at 6am GMT tomorrow. The 17 eurozone finance ministers have scheduled a conference call at lunchtime to review the deal. They will meet on Monday to decide if Greece's €130bn bail-out funds can now be released.

When are the Greek elections? Early April 2012?

Limp along to get re-elected...

Grrr went to fix a typo and deleted my whole post , will be back in the morning, too tired to retype it now