With Greece seemingly well-and-truly in the mainstream media's rear-view mirror, we thought it useful to go over a few details that are 'evolving' as we approach the CDS auction and foreign-law bondholder participation deadline. In a nutshell, there are now seven (count them seven) classes of debt in the Greece capital structure ranging from Old GGB holdouts to Troika- and EFSF-subordinated 'loans'. Critically though, just as we have written extensively, it is the size of the holdouts that will become a growing headache for the European Greek government. As BNP notes today, there are at a minimum EUR2.5bn but potentially up to EUR11bn of holdouts that leaves the Hellenic Republic with the chance of achieving 100% participation practically impossible and some very difficult choices between a disorderly failure-to-pay default on these holdouts (with all the ugly ramifications of out-of-control bankruptcy and litigation) or 'unfairly' pay this 'small' group of desperadoes out as normal (i.e. pay interest and principal to Par at maturity - no haircuts). This is exactly the 'blocking-stake-Foreign-Law-bond' strategy we suggested that hedge funds would undertake and it appears successful given the record price differential that now exists between Greek- and Foreign-Law bonds.
The spread between Foreign-Law and Greek-Law bonds has risen from EUR18 to EUR27 currently since we posted our original insight Subordination 101.
Of the Greek SOEs, only EUR 0.47bn of the EUR 3bn outstanding tendered for exchange or voted in favor. This means that a minimum of EUR 2.5bn from this category will likely end up being holdouts, unless they change their mind by the extended deadline of 23 March.
Of the EUR18.6bn Foreign-Law Greek bonds, 71.2% of the total outstanding voted either for or against, and of this quorum, a 95.6% majority voted in favor of the proposed amendments . However, these bonds do not have aggregate CACs, and what really matters is the quorum and the votes in favor of each individual bond series. Bonds with large outstanding amounts are less likely to see blocking states. This leaves up to EUR8.5bn (but more likely EUR2-5bn) eventual holdouts.
So the likely total holdout amount will be EUR4.5-7.5bn but could be up to EUR11bn.
But the real decision is just how subordinated you really want to be in this new seven class capital structure (that only looks worse in 2014)...