Monday 20 February 2012

Greek credit default swaps


Greek CDS to Trigger in March

20 February, 2012

Whether or not Greece stays in the Eurozone and for how long is still debatable, but Greek CDS contracts are set to trigger next month after Greek parliament retroactively inserts collective action clauses (CACs) forcing all debt-holders to participate in the next deal. 

Bear in mind that forced restructuring is the trigger, not the insertion of the CAC language itself.

The Financial Times reports Greece sets date for €200bn debt swap

Greece plans to launch a debt swap next month for private bondholders as part of a second €130bn bail-out expected to be approved on Monday by eurozone finance ministers, a government official said on Saturday.
The official said the swap, which would cover €200bn of Greek sovereign debt, would take place between March 8 and March 11, only days before Athens is due to repay a €14.4bn bond maturing on March 20.
As a first step towards completing the deal, the Greek parliament is set to pass legislation next week on so-called collective action clauses, with the aim of forcing a minority of “holdout” investors to take losses of around 70 per cent on their holdings.
The debt swap would offer bondholders a cash sweetener of 10-15 per cent of their holdings, plus new 30-year bonds with a coupon of around 3.75 per cent, which could increase if Greece achieves higher than forecast growth rates
An Athens banker with knowledge of the swap negotiations said the size of the cash payment and the final interest rate would be set by eurozone officials ahead of Monday’s meeting of finance ministers.

Default Ducks Lined Up

As noted earlier, the ECB will get preferential treatment on its bonds, exchanging them at par. 

After the swap, the ducks will then be lined up for the Troika to find some excuse to deny Greece payments or request still more austerity measures that Greek politicians refuse to go along with. In theory, the Greek mess could fester for years, I just highly doubt it will.

A hard default will not be as disorderly as most claim, especially from the point of view of the rest of the Eurozone. There are only $3.2 billion or so  Net CDS Contracts still floating around, a trivial number these days. I have seen reports as low as $2.8 billion. Last month it was $4 billion.

Greece is in a hopeless situation until it exits the Eurozone. German officials seems to have figured that out even if the Eurocrats have not.


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