http://www.zerohedge.com/news/greek-psi-terms-leaked-imply-greek-redefault-within-2-years
Submitted by Tyler Durden on 02/20/2012 15:26 -0500
Latest PSI Terms Leaked; Imply Greek Redefault Within 2 Years
The first details of the Greek bond deal are leaking out via Reuters, and we now learn the reason for the Greek bond sell off in recent days:
- UNDER GREEK DEBT SWAP, PRIVATE SECTOR WILL GET 3% COUPON ON BONDS FROM 2012-20, 3.75% COUPON FROM 2021 ONWARDS [2021... LOL]
- PRIVATE SECTOR WILL ALSO GET A GDP-LINKED ADDITIONAL PAYMENT, CAPPED AT 1 PCT OF THE OUTSTANDING AMOUNT OF NEW BONDS
- GREEK BANK RECAPITALISATION NEEDS MAY NOW BE AS MUCH AS 50 BLN EUROS-DEBT SUSTAINABILITY ANALYSIS
Which in turn explains the sell off in pre-petition Greek junior triple subordinated bonds (i.e., those held by private unconnected investors, which are subordinated to the Troika, to the ECB, to the Public Sector and to UK-law bonds in that order). With the EFSF Bill "sweetener" amounting to about 15 cents (and likely less), the fact that bondholders will receive a 3% cash coupon, a cash on cash return based on Greek bonds of 2015 trading at just 20.7 cents on the euro, indicates that investors are expecting to collect 1 cash coupon payment, and at absolute best 2, before redefault, as buying a 2015 bond now at 20.7 of par, yields a full cash return of 21 (15+3+3), thus the third coupon payment is assured not to come. And since there is a substantial upside risk premium kicker to bond buyers, so in reality the investing market is saying that Greece will last at best about a year following the debt exchange (if it ever even happens) before the country redefaults.
Oh, and by the way, the fact that creditors just got even more bent over, just assures that Greece can kiss the 75% threshold for PSI acceptance goodbye. Hello CACs, and CDS trigger.
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