http://globaleconomicanalysis.blogspot.com/2012/03/money-for-debt-swaps-but-no-money-for.html
Money for Debt Swaps but No Money for Greece; Eurozone Delays Rescue Funds on Failure to Meet Conditions
The Financial Times reports Eurozone delays Athens rescue funds
Eurozone members have delayed approval of more than half of the €130 bn bail-out for Greece after deeming that Athens has yet to meet all the terms set as the price of a second rescue.
However, finance ministers from the 17-country currency bloc meeting in Brussels signed off on funds to underpin a € 206 bn debt swap to cut the value of the Greek bonds held by private investors.
Jean-Claude Juncker, the Luxembourg prime minister who chairs the Eurogroup, said Greece’s official creditors would “finalise in the next few days” an assessment of Greece’s steps to enshrine the bail-out conditions into law.
But he added that the full bail-out would only be completed on a successful completion of the debt swap with private bondholders.There is not much new information here actually. Greece was supposed to have met conditions at the end of October, then November, then January, then February.
The ministers decided that Athens had yet to meet all the conditions to secure the €71.5bn portion of the bail-out destined for the Greek government. The balance of the rescue funds – which, when combined with other incentives and instruments to be used in the debt swap comes to some €93bn – was agreed.
Every time Greece failed and it did not matter. The EMU granted extension after extension.
However, with the debt swap and protection of the ECB, and with a bond payment due on March 20, time has run out for extensions. The sane thing to do would be for the EMU, IMF, and ECB to accept the very simple fact that Greece is bankrupt and there is no point in giving Greece another nickel, thereby forcing Greece out of the Eurozone.
All parties should have recognized that years ago actually, but stubborn ideology got in the way.
and...
http://www.reuters.com/article/2012/03/03/greece-moodys-idUSL2E8E2EPL20120303
(Reuters) - Moody's Investors Service on Friday cut Greece's sovereign debt rating to the lowest possible level after a debt-restructuring deal that imposes hefty economic losses for private creditors.
Moody's lowered Greece's local and foreign-currency bond ratings a notch to C from Ca, becoming the third credit rating agency to downgrade the country following the announcement of the swap deal to lighten its debt burden.
Moody's says that bonds rated C "are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest." The rating agency added that it did not assign any future outlook.
"The announced debt exchange proposal," the credit rating agency said in a statement, "implies that private creditors that participate will incur substantial economic losses on their holdings of the Greek government debt."
On Monday, Standard & Poor's cut Greece's long-term ratings to "selective default," the second ratings agency to proceed with a widely expected downgrade after the country announced the bond swap. Fitch had announced a cut to its lowest rating above default last week.
Greece formally launched the bond swap a week ago.
Under the deal, which is part of a second 130-billion-euro rescue package to claw Greece back from the brink of a disorderly default, bondholders will take losses of 53.5 percent on the nominal value of their Greek holdings, with actual losses put at around 74 percent.
According to Moody's, "the announced proposal for private sector involvement, a precondition for the provision of further financial assistance from the euro area, would constitute a distressed exchange, and hence a default, on Greek government bonds."
The rating agency makes a distinction between a distressed exchange - where investors are losing money - and an outright default that is likely to happen when the exchange does not take place.
"Both these conditions are met in this case," Moody's said.
When the Eurogroup's assessment has been finalized and debt exchanges have been completed, Moody's will re-assess the credit risk profile and ratings of any outstanding or new securities issued by the Greek government.
Moodys' concludes that "the risk of default even after the debt exchange has been completed remains high," and any upward movements in Greece's sovereign ratings after the debt exchange are likely to be small.
and...
http://www.acting-man.com/?p=15111
No Let-Up in CDS on Greece, in spite of Initial ISDA Determination
Below is our customary collection of charts, updating the usual suspects: CDS on various sovereign debtors and banks, bond yields, euro basis swaps and a few other charts. Charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). Prices are as of Thursday's close.
In spite of ISDA not declaring a credit event on Greece's debt yet, CDS on Greece have continued to rise strongly on Thursday, a sign that market participants fully expect a credit event to be declared in the end.
We would note to this while the 'netted out' amount of CDS outstanding on Greece is only $3.2 billion, the 'gross exposure' is at nearly $71 billion. So whether an eventual 'credit event' is settled without a hitch partly depends on counterparty risks that may not yet be obvious. We think the risk of something going wrong is very small, but it is not non-existent.
Credit conditions elsewhere in the euro area have eased markedly further, as the effects of the second LTRO percolate through the system. As always lately, both Greece and Portugal were notable exceptions to this trend.
and....
Former Goldman, JP Morgan Banker Warns Hedge Funds To Accept Coercive Greek Exchange Or Else
In the neverending saga that is the Greek exchange offer we have a new and very important player: the head of the Greek debt management agency, Petros Christodoulou, who is now actively threatening any Greek hold out hedge funds against doing what is in their LPs' best interests (suing Greece and the EU and holding out for par recoveries - as discussed here), by using not only the now trite and idiotic Mutual Assured Destruction clause which only those stuck in 2008 believe is remotely credible, but by advising hedge funds (which are actively forming ad hoc hold out committees as we speak, just as we predicted 6 weeks ago) that "there is just no money for holdouts...We are prepared for legal challenges but the risk here is that people are trying to be too smart." Oh, so now if one does what is in their interest, and dare hold out against collectivist fascist interests, they are "trying to be smart." We wonder if Mr. Christodoulou learned such brute force negotiating tactics at one of his former employers: JP Morgan or GoldmanThat's right - as we wrote over two years ago, the man who is now negotiating for Greece's and Europe's life (because a failed PSI will not only trigger CDS, more importantly it will result in an out of control default of Greece and likely its exist from the Euro and the Eurozone - two things that Germany would be delighted to see) is a former employee of the two companies that just so happens are the co-chairmen of the US Treasury Borriwng Advisory Committee, or as we have also called it before, "The Supercommittee That Really Runs America." Is the pattern finally emerging?
Mr. Christodoulou declined to comment on whether the clause would be activated but he did underline that the consequences of a failed deal are dire not just for Greece but for bondholders too.
The alternative, he said, “is too dire to contemplate.” He added that if this deal failed, the next offer bond holders would get would be far inferior, lacking the incentives that the current offer has.
Mr. Christodoulou said that it was too early to get a sense of what the participation rate would be but that he said he was confident that at the end of the day enough investors would agree to the deal to reach the target.
“We are targetting near universal participation,” he said. “We have spent a lot of time on this — now we are ready to implement it.
Also as said here countless times before, the hedge funds certainly have the upper hand in the standoff with Greece, if only they successfully collectivize and form a hold out stake. Guess what: that's precisely what they are doing, using Bingham McCutchen (if any readers have a Greek bond stashed somewhere, whether it is Greek or UK-law, and wish to prevent this travesty from happening, reach out to Bingham and join the hold out group)
Nevertheless numerous hedge funds have been accumulating a range of Greek bonds that are governed by foreign law in the hopes of of making a legal challenge. These securities range from bonds issued by Greece’s near bankrupt railway firm to so-called pharma bonds — bonds issued by the Greek government and paid to cash-starved Greek pharmaceutical companies in place of cash
Law firms like Bingham McCutchen have been soliciting hedge funds, asking that they form a consortium to challenge Greece by accumulating enough of these types of bonds so that they might be able to block the deal and perhaps receive near full payment from the Greek government.
The rationale being that Greece would rather pay off these investors as opposed to having to fight them in court.
Needless to say, the TBAC crony is not happy at the prospect of an out of control default collapse of the system unless the hedge fund hold outs aren't bribed to comply.
Mr. Christodoulou sees little chance of this happening.
“We feel we need to honor the long term investors who will participate in the deal,” he said. “It is not in anyone’s interest to see them take a 70 percent haircut while others get par.”
Uh sorry Pet, it's not about what seems fair to your crony accomplices. It's what makes the most money. And the best strategy right now is for hedge funds to build up pair trades (buy CDS and bonds) going into the PSI and just say no, knowing very well that they have all the power in the world if more than 25% of hedge funds announce they refuse to participate in the coercive PSI.
Just as we have been saying for months.
And incidentally, here is a modest suggestion for Germany: if you want to hate someone, hate Goldman Sachs. After all, Goldman is the firm that spawned not only Mario Draghi who as we wrote yesterday is now the most hated man in Germany, but also this Greek pawn whose only job now is to do everything in his power to keep Greece part of the Union - something that well over 60% of Germans do not want. And as a reminder, it was also Goldman who allowed Greece to reach to its catastrophic debt load in the first place by coming up with clever ways to disguise its debt. Yup: if there is anyone who can play not both, but all three side of the game (including be the referee) it's Goldman.
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