Greece Issues Exchange Offer Terms; Raises Minimum Acceptance Threshold To 75% From 66%; €10 Billion Buys PSI Killer

Tyler Durden's picture


Three days ago we recoiled in terror at the stupidity of Greek leaders, when we learned that the Greek exchange offer would be deemed satisfactory if only 66% of bondholders accept it as valid, as it would mean an immediate abrogation of UK-law bonds which have a 75% minimum covenant threshold as specified in the indenture. Apparently this was a "small oversight" on behalf of the gross amateurs in charge of this process as according to the just released full exchange offer doc, this threshold was mysteriously raised to the proper minimum acceptance threshold of 75%. Of course, it is needless to say that at least 25% of Greek bondholders will decline the offer, either in the current Greek law exchange, or the forthcoming UK-law one, which would throw the whole process into a tailspin.  Because here is the kicker, from the release: "if less than 75% of the aggregate face amount of the bonds selected to participate in PSI are validly  tendered for exchange, and the Republic does not receive consents that would enable it to complete the proposed exchange with respect to bonds selected to participate in PSI representing at least 75% of the aggregate face amount of all bonds selected to participate in PSI, the Republic will not proceed with any of the transactions described above." So here's the math: if one has 25% +1 of the €177 billion in Greek-law bonds, they can smash the entire process (and give Germany a way out, wink wink). At today's price of about 20 cents on the dollar, this means that one can hold Greece, and thus Europe (assuming Europe wants Greece in the Eurozone and Germany itself is not the biggest shadow hold out) hostage for less than €9 billion. Or better yet, since the total bonds subject to PSI are about €206 billion, this means UK law bonds of just €29 billion are part of the deal, and one can buy a blocking stake there, at roughly 30 cents on the euro, for a meager €2 billion in cash out today. Furthermore since many hedge funds already have built up blocking stakes, this almost certainly means that Greece will not get the requisite needed votes to pass the exchange. Wondering if these hold-outs are actively shorting the market knowing they can bring Europe to its knees with virtually no capital at risk? You should be.

And 75% is just the absolute minimum threshold: somehow Greece thinks it has a realistic chance of getting 90% to agree to get raped, run over, and crammed down by 4 other classes of senior noteholders:

In addition, unless bonds representing at least 90% of the aggregate face amount of all bonds selected to participate in PSI are validly tendered for exchange, the Republic will not be required to settle any of the exchanges. However, if the Republic receives consents to the proposed amendments that would result in at least 90% of the aggregate face amount of all bonds selected to participate in PSI (including bonds tendered for exchange) being exchanged on the terms proposed by the Republic, the Republic intends, subject to all other conditions being satisfied and in consultation with its official sector creditors, to declare the proposed amendments effective and to complete the exchange of all bonds selected to participate in PSI that would be bound by the proposed amendments.


If at least 75% but less than 90% of the aggregate face amount of all bonds selected to participate in PSI are validly tendered for exchange, the  Republic, in consultation with its official sector creditors, may proceed to exchange the tendered bonds without putting any of the proposed amendments into effect.

And that, ladies and gentlemen, is the German "out", because since Greece will at best get an absolute minimum passing threshold, Germany will just say Nein and call the process abusive.

As posted before, here is the walkthru for the transaction, just replace 66% with 75% in the minimum threshold case.

The full terms of the post-reorg bonds are below but they are completely meaningless as it is almost certain that we will not get to there.


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Fri, 02/24/2012 - 13:43 | 2193258 Deep79
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So this is bullish right?



Fri, 02/24/2012 - 13:45 | 2193265 LawsofPhysics
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... for war, yes.

Fri, 02/24/2012 - 13:49 | 2193287 BigJim
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  Or better yet, since the total bonds subject to PSI are about €206 billion, this means UK law bonds of just €29 billion are part of the deal, and one can buy a blocking stake there, at roughly 30 cents on the euro, for a meager €2 billion in cash out today.

Paging Iran, hey guys, want to fuck up the banksters? I got an idea for ya...

Fri, 02/24/2012 - 13:52 | 2193301 Cognitive Dissonance
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Fri, 02/24/2012 - 13:57 | 2193315 French Frog
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"Of course, it is needless to say that at least 25% of Greek bondholders will decline the offer"

Can someone explain in simple term for a simpleton like me, why ZH is so sure of that; I would have thought that guns would be pointed at the heads of those trying to derail this?

Fri, 02/24/2012 - 14:06 | 2193348 ThirdCoastSurfer
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ZH sees hedge funds deliberately building blocking stakes through discounted purchases in a gamble/attempt to trigger credit default swaps for the full value. 

Fri, 02/24/2012 - 14:09 | 2193360 Comay Mierda
Comay Mierda's picture

damn i guess when i tweeted this morning that greece defaults i wasn't really too far off

Fri, 02/24/2012 - 14:12 | 2193378 JPM Hater001
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We keep bouncing off of 13K...looks like a ceiling until facts appear or the 330 rumor.

Fri, 02/24/2012 - 14:32 | 2193475 slewie the pi-rat
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The Mogambo Guru is Back!

[yes, that's a link!]

Fri, 02/24/2012 - 14:39 | 2193511 Kali
Kali's picture

Yay!  I have missed him so. 

Fri, 02/24/2012 - 14:55 | 2193578 NotApplicable
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*runs off to see the current state of his bunker*

Fri, 02/24/2012 - 15:14 | 2193663 redpill
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Good to see TMM!  This JMR loves the SMC told in the CMW about HSA of Fed Money and following the MSA.


Fri, 02/24/2012 - 15:12 | 2193655 barkster
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That's a spot of good news - i have missed that guy.

Fri, 02/24/2012 - 14:11 | 2193376 They_Live
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But given PSI of €206 billion why doesn't the ECB just buy up 75% of it at face value? Ctrl+P makes everything so simple.

Fri, 02/24/2012 - 15:10 | 2193650 redpill
redpill's picture

Don't think they aren't considering it.  I'm predicting shenanigans to avoid CDS trigger.

Fri, 02/24/2012 - 17:45 | 2194273 Capt Tripps
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I swear to God I'm going to pistol whip the next guy who says, " Shenanigans."

Fri, 02/24/2012 - 17:57 | 2194298 Lord Welligton
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  • From Irish sionnachuighim (I play the fox),
  • Fri, 02/24/2012 - 18:11 | 2194337 unrulian
    unrulian's picture

    hmm..... "Shenanigans"

    Fri, 02/24/2012 - 18:17 | 2194359 Capt Tripps
    Capt Tripps's picture

    For the Culturally Deprived:

    Captain O'Hagan: I swear to God I'm going to pistol whip the next guy who says, " Shenanigans."
    Mac: Hey Farva what's the name of that restaurant you like with all the goofy shit on the walls and the mozzarella sticks?
    Farva: You mean Shenanigans?
    [as they hand the Captain their pistols]

    Fri, 02/24/2012 - 14:28 | 2193457 crawldaddy
    crawldaddy's picture

    why else would the hedge funds make such major moves in this garbage paper if this wasnt the case?


    Does anyone know of any other motives that could of made hedge funds join this circus in the last few months?

    Fri, 02/24/2012 - 15:46 | 2193815 chubbar
    chubbar's picture

    If I was a hedge fund manager who had family and a life in one of these periphery countries I would think just the aspect of potentially maintaining sovereignty for my country would be a motive.

    Sat, 02/25/2012 - 13:32 | 2195722 PhilB
    PhilB's picture

    Bond swap a done deal:

    There has been NO CHANGE to the Greek governed bonds MINIMUM CRITERIA of 66% to trigger the CACs. This is clearly stated in the Memorandum on Friday. Either I am or ZH is confused, so I welcome some informed feedback here.

    This deal looks done because we need 66% of Greek law bonds to trigger the CACs. In order for the bond swap to go bust we would need 58 Billioon Euros on Notional of local Greek bonds to block. This seems very unlikely given that the Greek Banks own the majority of Greek bonds and they are held locally.

    More over once the 66% of local bonds approve of the swap, due to the CACs this will be counted as 100% of the 177B bonds. Meaning that the foreign bonds, which ammount to only 29B (14% of all bonds), alone make it impossible, even if 100% of the foreign bonds were against the swap, to outright block the swap. Furthermore, its is highly likely that once the hurtle of 66% local bonds is met, to get the 90% (since it would require more than 70% of foreign bonds holders to fall below this level).

    So DEAL IS DONE...and ZH conclusions are wrong, I welcome your thoughts.

    Fri, 02/24/2012 - 14:07 | 2193350 bdc63
    bdc63's picture

    Put yourself in the shoes of the bondholder.  Assuming you purchased CDS insurance, you can either:

    A: agree to the deal and get pennies on the dollar


    B: don't sign the deal, let Greece default on the bond that you bought, and be made whole with the CDS insurance that you purchased ...

    Fri, 02/24/2012 - 14:16 | 2193396 carbonmutant
    carbonmutant's picture

    "and be made whole with the CDS insurance"

    Not going to happen.

    This is why they're being forced to accept the 75% haircut.

    The CDSs are like the AAAs the Monolines offered. It works as long as no one tries to collect.

    Fri, 02/24/2012 - 14:31 | 2193465 crawldaddy
    crawldaddy's picture

    true but that didnt stop the cds from paying off in 08.  AIG had no way of paying them off, so the fed came to the rescue.

    Fri, 02/24/2012 - 14:33 | 2193481 walküre
    walküre's picture


    Fri, 02/24/2012 - 15:05 | 2193619 NotApplicable
    NotApplicable's picture

    You forgot the word "sovereign," which Lehman was not.

    Apples and oranges...

    (besides, Lincoln proved conclusively that those who are empowered by unions will destroy everything before they allow  them to dissolve)

    Fri, 02/24/2012 - 15:50 | 2193827 bdc63
    bdc63's picture

    not apples and oranges at all ... its the same damn thing.

    ... and Greece defaulting does not "dissolve" the European Union.  the only thing the EU cares about is ring fencing their banks from the carnage, and I suspect they have already made decisions about how to accomplish that.

    Fri, 02/24/2012 - 16:20 | 2193958 carbonmutant
    carbonmutant's picture

    You mean by hedging the CDSes with more derivatives?

    Fri, 02/24/2012 - 16:46 | 2194053 bdc63
    bdc63's picture

    What a great idea -- I didn't even think of that!  I was thinking more along the lines of Cental Banks buying up all the toxic assets at "par" ... or maybe having all the banks "sell" all their CDS contracts to one bank (say, Dexia) and then stand back and watch it implode (making all the contracts worthless of course) ...

    But creating even MORE derivatives ... I'm liking it!

    Fri, 02/24/2012 - 17:04 | 2194111 Yardfarmer
    Yardfarmer's picture

    but that's what it's all about anyway. derivative growth is going exponential, without even the semblance of regulation. it's the only thing keeping these zombie banks walking and spinning the ever growing hurricane of hyperinflation into a financial black hole. According to Jim Willie, the Office of the Comptroller & Currency  "revealed $8 trillion in notional derivatives put on by Morgan Stanley alone" for Q1 2011. 

    Fri, 02/24/2012 - 20:39 | 2194629 mendigo
    mendigo's picture

    I really don't comprehend what's being said here, but it sounds like your saying that someone (a banker/investor) would volontarily agree to accept less than full payment for a debt. define voluntary clearly psi is a term meant to satisfy the type of people who buy lottery tickets. I would assume real plan is for the public to buy the bad debt - only remains to detirmine the acceptable wording of the transaction

    Fri, 02/24/2012 - 14:33 | 2193484 MsCreant
    MsCreant's picture

    As the fire rages, the firehoses will run out of water and not everyone will get their money. This gamble is a bad idea.

    Fri, 02/24/2012 - 16:30 | 2193994 carbonmutant
    carbonmutant's picture


    Fri, 02/24/2012 - 14:08 | 2193357 EL INDIO
    EL INDIO's picture

    Tyler’s theory is that Germany is setting up Greece for a default so if it turns out to be the case those who refuse the ‘deal’ will do so with German blessing if not complicity.

    Fri, 02/24/2012 - 14:12 | 2193379 slaughterer
    slaughterer's picture

    Lots of phone calls between Elliott Management Corp and Berlin lately. 

    Fri, 02/24/2012 - 14:17 | 2193402 French Frog
    French Frog's picture

    Thanks TCS & bdc: then the bondholders must be really confident that ISDA is not going to be able to evoke some well-hidden rule somewhere that would stop a CDS trigger. How likely is that?

    El Indio: i get it now; there was a post on ZH a few days ago that stated exactly that same view; crafty buggers aren't they, those Germans lol

    Fri, 02/24/2012 - 14:33 | 2193469 crawldaddy
    crawldaddy's picture

    Germany can play the plausible denial card.  Get what they want while being able to say.. we didnt do it.


    Fri, 02/24/2012 - 14:10 | 2193368 iDealMeat
    iDealMeat's picture

    I think this is what Corizne was trying to do..  Buy a block..   It's a banker eat banker world when the sheeple pull back..

    Fri, 02/24/2012 - 14:10 | 2193370 Piranhanoia
    Piranhanoia's picture

    alas,  only a percentage of priceless.  

    Fri, 02/24/2012 - 13:53 | 2193303 Fukushima Sam
    Fukushima Sam's picture

    Damn, I didn't know this whole thing would be so popcorn worthy.  I'm on pins and needles waiting for the next plot twist!

    Fri, 02/24/2012 - 14:14 | 2193390 brooklynlou
    brooklynlou's picture

    Yep. As the Sheep turns ....

    Fri, 02/24/2012 - 15:09 | 2193642 NotApplicable
    NotApplicable's picture

    Meanwhile, out here in meatspace, you'd never know it's even occurring. They all think oil is rising simply due to war fears.

    Fri, 02/24/2012 - 15:36 | 2193774 eatthebanksters
    eatthebanksters's picture

    Do you think Soros is hovering in the shadows somewhere?  I think that hypocritical SOB wannabe kingmaker is drooling right now...

    Fri, 02/24/2012 - 16:55 | 2194090 rrwoodward
    rrwoodward's picture

    I was just thinking about all looks very similar to his currency "check mate".

    Fri, 02/24/2012 - 13:54 | 2193300 TruthInSunshine
    TruthInSunshine's picture

    The private holders of Greek sovereign bonds (and soon, far more holders of far more nations sovereign debt) fate, as portrayed by Monty Python:


    Dead Parrot
    Fri, 02/24/2012 - 15:11 | 2193654 NotApplicable
    NotApplicable's picture

    Well, he's...he's, ah...probably pining for the fjords.

    Fri, 02/24/2012 - 15:59 | 2193876 TruthInSunshine
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    I can't resist a good pun.

    Fri, 02/24/2012 - 18:54 | 2194464 Buck Johnson
    Buck Johnson's picture

    You can bet your last dollar that we will be at war with Iran in a few weeks.  They are ramping up the rhetoric against them.

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