As expected , the 66 percent participation level probably has been reached - note to get where they need to reach , Greece will still have to impose the CAC law and thus there will be a credit event triggering CDS....

http://www.zerohedge.com/news/reuters-reports-hedge-funds-have-found-greek-default-trigger-loophole

Reuters Reports That Hedge Funds Have Found Greek Default Trigger Loophole

Submitted by Tyler Durden on 03/08/2012 18:12 -0500

• Bond
 
• Creditors
 
• default
 
• Fail
 
• Fresh Start
 
• Greece
 
• Reuters
 
• Sovereign Debt

While the general market mood is one of pre-default euphoria reminiscent of that in the pre-Lehman weekend, clouds may be brewing. As Reuters reports, "Some hedge funds have found a legal loophole they believe will force Greece to repay some of its debt in full, three sources close to the matter said on Thursday, in a move that would intensify the standoff between the country and its debtors." The loophole? A tiny €412.5 million bond issued by Hellenic Railways with a clause that "allows bondholders to argue that Greece is in default if it is trying to restructure or change the terms of its debt, the sources said. The creditors could already argue that Athens has defaulted, and if they buy up a quarter of that bond -- or enough of it not to be forced into the debt swap -- they can also then demand immediate repayment, a process known as acceleration." More: "The funds are now trying to buy up enough of the bond -- issued by state-owned Hellenic Railways and guaranteed by the government -- to force Greece to repay them in full, to the tune of some 400 million euros. If Greece refuses to do so, this may trigger similar provisions on other Greek railway bonds, potentially landing Athens with a bill of about 3 billion euros, with investors demanding immediate repayment, the sources said." Things could move very fast since the PSI results are due in 7 hours: "Sources close to Greece's negotiation fear the funds could already start the acceleration process by Friday, or next week, if they find they have a big enough majority."

And while the amount is nominal, once legislation has commenced that does in fact find Greece in default it could well derail the PSI process even retroactively as this outcome could be seen as a Matrial Adverse Change in the conditions for the PSI, as a par payout will certainly infuriate others who are not only getting crammed down on the current bonds, but have a 85% discount to look forward to on the "fresh start" bonds as well.

And finally, this is nothing new - the very same outcome will happen when Greece tries the UK-law bond exchange offer in a few weeks, which it will fail. Where Greece will get the up to €30 billion in cash to fund par payouts on that, and other foreign law bonds, is unclear - Greece has already said there will be no cash for holdouts under any CUSIP. And Europe will certainly not pay for the incremental cost of providing some evil, evil, hold out hedge funds with a par return, merely because they were not lazy and read the bond indenture cover to cover.

Naturally, one has to downplay this event:

It is unlikely the hedge funds could derail the overall debt swap, which will shave more than 100 billion euros off Greece's debt pile, a crucial precondition for receiving more international aid and staying in the euro.

The exchange has already been accepted by more than 75 percent of investors, a senior official told Reuters ahead of Thursday's 2000 GMT deadline.

The hedge funds have been targeting some of Greece's more investor-friendly foreign law bonds -- like the railway bond -- hoping to stop Athens from activating so-called Collective Action Clauses (CACs), used to impose losses on all holders.

This could then allow them to squeeze a bigger payout, potentially through lengthy court challenges, while creditors that do sign up to the bond swap face losses of 74 percent on their investments.

It doesn't stop with this particular bond:

Although these clauses only concern this one bond, the action by hedge funds could trigger clauses contained in other Greek railway bonds.

And because of the provisions in other bonds governed by English law, this could eventually affect more deals, potentially affecting up to 8-9 billion euros worth of debt, one of the sources said.

Maybe one should not count out the hedge funds just yet. As a reminder, those who do engage in international sovereign debt litigation stand to generate massive return if successful. Which at the end of the day is all that matters to the LPs.

and...

http://globaleconomicanalysis.blogspot.com/2012/03/success-at-gunpoint.html

I am rather amused by the absurd headline on Financial Times this evening: "Greek debt swap support close to 95%"

The largest debt restructuring in history was heading for a successful outcome last night as Greece looked set to see a participation rate of close to 95 per cent for its €206bn bond exchange.

One person involved in the deal said that more than 90 per cent and possibly more than 95 per cent of investors had taken part, assuming collective action clauses (CACs) were used to bind dissenting holders of some bonds.

The high participation rate is only possible through the use of CACs, which will make the offer binding on all holders of Greek-law bonds. That in turn will almost certainly trigger pay-outs under credit default swap insurance.

“This extraordinarily difficult deal … allows Europe to avoid what could have been an enormously costly, disorderly default,” Charles Dallara, chief negotiator for Greek bondholders, said on Thursday during a visit to Brazil.

Difficult DealYes indeed, the deal was so difficult that the Greek parliament chose to enforce it on holdouts by gunpoint, more specifically retroactivecollective action clauses (CACs).

Here is yet another measure of "success"

Financial markets are already betting Greece will default again in the future. Grey market pricing for the new Greek bonds to be issued as part of the exchange ranged from 17 to 28 cents on the euro, a highly distressed level, according to indicative quotes seen by the FT.

The pricing equates to a yield on the new bonds of 17 to 21 per cent about where Greek yields stood in the autumn and far worse than the yield on debt issued by Portugal, which has also received a bailout.

The definition of  "success" at 17 cents on the dollar for new bonds (and even then only achievable at gunpoint) is so preposterous I hardly know what to say.

and ....

Greece prepares to announce participation rate in PSI

The deadline for Greek bondholders to agree to a voluntary debt restructuring scheme passed on Thursday night and the government is expected to announce on Friday morning that well over 75 percent of investors will take part in the swap.
Government officials remained tight-lipped over the participation rate of investors who hold 177 billion euros of bonds written under Greek law but momentum appeared to build throughout the day.
“I look forward to maximum participation by the private sector, which will contribute significantly to the effort to adjust and restore our economy,” Prime Minister Lucas Papademos said during a cabinet meeting.
Charles Dallara, head of the Institute of International Finance (IIF), which has been negotiating on behalf of large private creditors, said he believed the participation would likely be ”very, very high.”
Athens needed at least 66 percent of those holding bonds written under Greek law to take part in the deal. This would allow it to effect collective action clauses (CACs) imposing losses on the holdouts as well.
Friday’s announcement will not be the end of PSI for Greece as there is still the issue of some 18 billion euros of Greek bonds under other countries’ laws to settle. This amount accounts for 8.7 percent of the total privately held debt of 205 billion euros that Greece is seeking to restructure.
The bonds are written under UK, Swiss, Japanese, US and French law. Holders of these notes will have until April 11 to swap them. Greece’s public enterprises (DEKOs) also hold 3 billion euros of these bonds.
Greece has the option of either not paying these bonds at all or subjecting them to a greater haircut than the one for bonds written under Greek law. Whichever option Greece chooses, it is likely to face legal challenges from the investors who hold these notes.
The decision over which course to take is likely to depend on the participation rate in yesterday’s debt swap. Greece needs to have an overall participation rate between 95 and 100 percent to satisfy the eurozone and the IMF that it is on its way to making its debt sustainable. If today’s announcement reveals a lower participation rate than desired, Greece could have to default on the bonds that are written under foreign law.

Papademos described as “shortsighted” the decision of some pension funds not to take part in PSI. Seven pension funds holding about 3 billion euros agreed to join the scheme but six funds with some 3.5 billion euros refused to accept a haircut.