Chillin' out till it needs to be funded
Here is the situation as the flyball caught by NYTimes’ Dealbook indicates , the softball ready to be smashed around the ground, but with enough near hstory to scare banks from participating (having lost on the first 80/20 haircut deal signed by the ECB)
On the plus side:
a. The Greek technical Default does not matter as long as Greece does it on its own terms
b. There is absolutely no one who believes the Greek debt will come down to 121% of GDP or that they willl have a balanced budget even in 2014 or that the state enterprises promised on the reform chop will actually ever get done. This is the basis for the barest expectations even as the paper arbitrage touted below from 19 cents to 30 cents if and when the deal is done according to the new terms in April..
c. The ECB has wasted countless hours on this and unwittingly, it has turned in the most sensitive economic treatment of a political enigma, no socialist nation has survived such a state of the Economy and Greece has not been spared either. The gap in the MArch instalment of investors who do not accept /litigate and did not have CDS protection lekely less than a $1.1 bln
d. The debt is already rated C a day after the conference, two notches below ‘CCC’ a day before the conference
But the upside may be too tantalizing to ignore, given the short time frame involved (the deadline to get the deal done is March 20, when Greece faces a 14.5 billion euro bond repayment) and the potential return (possibly 28 percent in less than a month).
Moreover, if investors pile into the bonds and then agree to the swap, the chances improve that enough investors vote to participate in the transaction so that it actually takes place. That would make the trade a win for speculators as well as for Greece, whose debt will be reduced by 100 billion euros if the deal is completed.
In many ways the investor interest is a sign that the debt restructuring — without which Greece will certainly face a chaotic default — has a good chance of succeeding.
The latest sign is the draft of a collective action clause law that is expected to be passed by the Greek Parliament in the coming days. Known as a CAC, this clause is being attached to existing Greek bond contracts, giving Greece the right to force all investors to accept the 75 percent loss on their holdings – even those who choose to spurn the offer.
A CAC can be imposed only after it has become clear how many investors want to swap their bonds and how many will choose to opt out. Greece — in setting a participation threshold of 66 percent — is more or less indicating that it believes that percentage of investors will participate. Once that many vote to accept the terms, minority investors will be forced to share in the losses.