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Greek CAC Trigger Walk Thru
While we have done our best to explain what the implications are of the actions of the various parties in the Greek/German/ECB/Euro swap/default/CAC/PSI/Austerity events, it is perhaps worth one more try to address how we see this playing out and exactly what the ECB just did. The weakness in GGBs today along with the rise in the cost of Greek basis packages (a hedged bond trade that looks to profit from a credit event or compression) suggest markets are beginning to wake up to reality but the dead-currency-walking behavior of the EUR (and ES) since last night's close suggests many remain sidelined or have all their chips on the constantly-tilting table.
From Peter Tchir:
Here is how is see it playing out and an explanation of what the ECB has done.
If there was a bond with a billion outstanding and the ECB held 200 million and private investors held 800 million it would make the psi awkward. It would be offered to everyone, but the best case scenario was 80% participation for that bond. So collective action clauses would have had to have very low thresholds (I bet the ECB owns 50% of some issues). It also was hard to make a law that forced holders to participate but excused the ECB. If Greece stopped paying on bonds, it would again be more difficult to pay some holders of a bond and not others.
So in any orderly evacuation of a sinking ship, women and children first. In this case the ECB. There should now be two bonds outstanding. Own for 200 million and the other for 800 million. The ECB will own 100% of the new bond. Those bonds will have special rights and documentation. I don't think the ECB will take an accounting gain (or loss) on the exchange. They will keep it marked "at cost". The fact that maturity and coupon is same as original bonds makes that an easy argument. So this does nothing for Greece. Absolutely zero. TheECB may cut them a check or give them some debt relief but that would be separate. This does none of that. It may or may not have already been done (though somehow I suspect they view it as done but have actually figured out how to legally do it).
So the remaining 800 million of the original billion are all owned by private investors. Will someone challenge the legality of the swap? Can Greece really offer the swap only to the ECB? Possibly, but someone may object. The march 20th bond holders don't need to win the ruling, they just need to delay until march 20th to see if the troika flinches and pays them out at par. So I would expect someone to challenge this swap. Especially if the ECB holds any English law bonds. There are rules for tenders, etc., specifically to ensure fair treatment. While this swap may seem innocuous someone may challenge its legality.
Assuming the swap is done then the troika will start unleashing the weaponry on this 800 million (their 200 million having been nicely barricaded).
Bond holders will be given an offer to exchange old bonds for new bonds. The terms of the new bonds and the exchange ratio will be set. It sounds like investors will have 10 days to make a decision. I would think a lot of banks immediately make public statements that they agree to the terms. They will want to be seen as showing support and getting a big participation number early. Holdouts have no incentive to say or do anything. Delay is their game plan. Expect a participation rate of 85-95% very early. The march bonds will likely have the lowest participation rate as that is the big bet. Other bonds will vary but any that were ideal as a basis package will also likely have a decent holdout percentage.
Supposedly Greece will pass a law making all the old bonds subject to collective action clauses. They have obviously decided it is legal to do this, but time and again they haven't really done their homework. This could be another one of those cases. I would expect some holders of the march debt to challenge this law. I have no clue about the court system in Greece but have to believe someone will try and find a way to challenge a law that applies retroactively. I doubt they win but it is worth a try since the game is to delay until march 20th.
Assuming the law is in effect and the psi deadline arrives, there are 2 possible outcomes.
- 100% of the holders of each and every bond agrees to the PSI. In that case the CACS aren't used and there is NO Credit Event.
- More likely there is one holder of the "default requirement" amount of bonds who holds out (I believe the amount is 10 million, but have to double check that). So in our example 785 million of bonds agree and 15 don't agree. Then Greece CAC's them and they too get new bonds. This IS a Credit Event. CDS would be triggered. This seems the most likely case.
In the end every private holder will write-off 50 percent permanently and those that live in a mark to market world (fewer and fewer live in that world in Europe) probably lose another 20 points or so. CDS will be triggered and we will be told how great it was that Greece avoided a default and that it is an isolated case. All the debt banks issued with a Greek government guaranty will likely be left alone (it isn't the real world anymore).
Is that scenario priced in?
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Sooo......they're fucked either way.
Default. Show the world that you too can tell it to fuck off. I mean what the hell are the Germans and French going to do? How can it get worse?
ok what about the CDS? 32T worth of Pyrotech...
We have Reached the the corss roads and both of them are leading to HELL, but one is road is longer than the other.
This IS a Credit Event. CDS would be triggered
Why do i have the feeling that they will find some clause somewhere that will stop the CDS being triggered....
I've always wanted my Fuck You money!
French Frog,
My thoughts as well. Not much different than a big insurance company deciding not to pay a claim on a big loss.
Just like a Michael Moore doc - choose the outcome and then create the story to satisfy that outcome.
When I was much younger, a Black man told me that "Debt" was just FREE MONEY!, if you never intend to pay it back. I never really understood that, until recently.
Can you just imagine how differently this would be reported to the Sheeple if BUSH were President, right now? Hourly doom/gloom stories and breaking updates, yada, yada...
Those who make the rules change the rules : regulatory capture of immense magnitude. The man who said Guantanamo was an insult to US values at the beginning of his tenure, has not only not abandoned it and Patriot's act's ugly legacy, he has enhanced it with TSA and NDAA, and it isn't over this return to medieval age.
We are what we do, Nobel or no Nobel. Guantanamolese and NDAA salad dressing is now here to stay. Julian Assange and his spiritual sons have scared the shit out of the world Oligarchy. Prepare for the Big Brother onslaught. Resist, resist, never give in.
The spirit of Tom Paine and Lafayette, sons of the founding fathers, still live on.
I hear one of the CDS's (not neccessarily a Greek one, but do hope so!) pay-out at 500 to 1
...what financial moron wrote that business?!!
Yes resurger, you are right. But the one thing is the CDS has to be triggered, and I would of thought they would of been triggered about 6 months ago, but low and behold they never seem to get set off. I do not know maybe this time, but I get a sneaky feeling that the CDS's will not get activated....
CDS = sucker bait. Will never pay. Doesn't matter. The system is full of dry tinder.
Well, they could always fart in Greece's general direction.
Ole Monty Python never gets old, that was great stuff.
Greece should have just defaulted a YEAR ago and told the bankers to do their worst, it cant be any worse than this daily clownshow theyve put us thru ever since!
2008 all over again. This time a country, not a freaking Lehman.
And the market: Still dreaming COCAINATED EASING.
Those people (PRIMARY DEALERS TRADING DESKS) are hooked on FINANCIAL COCAINE, probably even real cocaine to behave like this.
Bullish on Influence, Any!
Yep! Dont worry! Its all contained to 1 Ouzo bottle!
Greece is as banany as any banany republic you will find anywhere in the emerging market jungles of the crony globe and the EU is right there with it.
I always thought that the US was the reference crony capitalism banana republic of the world, but the EU is really and truly turning out to be well beyond and above that. We need to come up with another fruit altogether to describe the EU situation.
pomegrante
Durian -- the stinky fruit!
EU gets its marching orders from the City and the Fed.
It sure does, but not directly. IMF is a huge part of it, I see they're on the hook for only a 10% contribution which means default announcement should be around the corner.
I prefer to think of the EU as one of the larger banana trees on banana-plantation-earth.
off topic (sorry)
Troops are going to Occupy DC to support Ron Paul and turn their back on Obummer
http://www.prisonplanet.com/leaked-email-military-top-brass-warn-troops-...
Keep an eye on this!
I'm telling on you. No terrorism allowed. </s>
Well this sounds bullish. Will be buying NFLX and AMZN on the default. Perfect set up for DOW 14k.
They continue to make it as complicated as possible, but guess what? The hedge funds that are playing this game are ready for the fight. In the end they will do whatever they want to do and the holdouts be damned. But it is a short term game with long term ramifications. Russian Roulette.
Send lawyers, guns and money - Warren Zevon
Excellent stuff, thank you Peter.
I am certainly hoping some bondholders will call BS on this charade!
The euro is beautifully positioned for a short. Nothing like a credit event over a 3 day weekend! Amazing how the NQ100 is sorta getting it right.
I don't know how you FX traders are doing it right now, shit is a mess. Good luck trading.
Man this is depressing I need a pick me up,
Robotrader where art thou?
Is it priced in? I don't know, this has gotten too bizarre and too convoluted to follow.
The event becomes shortable only in March, IMO. On Monday, a "deal" will be announced, and European markets will blast off. ES will be at 1380 overnight before Tuesday. Then we have the 95% participation rate in the PSI anounced the same week very early. Very public. Another blast off. Only after the euphoria of that news fades, and participants start asking about the other 5% will the downward trajectory make itself known as the court proceedings and eventually the CAC is invoked. Timing is everything here.
Tell that to the basis risk. Talk about blasting off.
So what happens on March 20 or a few days after that?
Timing is all wrong in your premise. There first needs to be another let down before the ramping continues. So failure on monday to reach an agreement. Then Tuesday all will be solved. That's the pattern.
Then what? At some point, someones going to have to take a shitload of losses. They thought 'Lehman' was a disaster? Chump change compared to this mess theyre trying to pass off on someone besides themselves.
Release another rumor, stall, print more money, lie.
You know, what they've already been doing.
You could be correct on that pattern of let-down. It seems to fit the model of conflict and confusion that has increased in frequency lately.
Don't forget effect of LTRO Wed night 2/28/12.
so 1380 is not enough now:::;;;))another blast off another one..we should be at 1420 soon...
1420 looks like a great level to short. :-)
<got it>
'785 million of bonds agree and 15 don't agree. Then Greece CAC's them and they too get new bonds. This IS a Credit Event. CDS would be triggered.'
Others claim that if a CAC majority approves the exchange, then it's officially 'voluntary,' even if the holdout minority objected. Result: perhaps NOT a Credit Event.
This is a vital point which needs to be double-checked. Hell, they could even write it into the Greece's new CAC law, right? Since they're making this up as they go ...
Peter will scour the PSI details no doubt for such participation rate clauses no doubt. The worst conspiracy theory I have heard though is that the ECB has already secretly bought out the bond holdings of all potential hold-outs.
That's what i was thinking too. If its such a small % then why not? The only downside I see is that a precedent will be set and more hedge funds will play this game and continue to buy Greek bonds with the demand they get paid par. (sounds like Goldman and AIG actually).
It seems like the worst case scenario is if the holdouts get screwed by this deal and CDS is prevented from triggering. If that happens, going forward, everyone will dump distressed sovereign debt down to at least the ultimate recovery level of this Greek deal the minute the ECB steps in and starts buying. Plus, there wouldn't be much reason to ever bother again with sov. CDS.
I'm no expert, but if history is any guide, your worst-case scenario is EXACTLY what will happen.
Banksters like to win the old-fashioned way: they CHEAT.
is the CDS triggered just on the 15 billion in hold outs? or does the entire deal all unravell?
This is a likely event if ISDA invole their action clause regarding CDS triggering on nonvoluntary payouts.
Those ISDA members are banksters and insurers, is ASSGEN in there?
So whould they torch their own future?
Maybe a round of legal action via Hedgies vs ISDA vs Greek Govmint that wll take all of 2012 to sort out......unless someone has a massive RESET game plan
Gotta agree with your last two statements. Anyone who thinks the ISDA is going to just allow a CDS trigger event to happen as it should is deluding themselves and needs to go read Jim Sinclair's write-ups from the last 2-3 weeks on this topic, or listen to the interview he did with King World News. I imagine anyone who bought CDS against a Greek default will not be getting paid, except maybe after a few years in court as noted above.
The only case that makes any sense for a CDS even to be officially "triggered" is if JPM and GS allow it to happen, which means such an event would strategically sink a rival they could then scrape off the cement for a few cents on the freshly printed dollar. *cough* *cough* BofA Merrill *cough*
ISDA made their intent to screw CDS purchasers quite clear last October.
Nothing has changed: the diligent foxes have not abandoned their guard posts at the henhouse.
Come March 20th, gonna be a cluck-cluck here, a cluck-cluck there, here a cluck, there a cluck, everywhere a cluck-cluck ...
For those who want to review a "model" of this type of debt to equity swap and haircut, review the CIT bankruptcy a few years ago. Focus on the actions of the CIT BOD, their lawyers and then Carl Icahn throughout that deal.
Instead of the "Everyone's a winner" bullshit spouted in the politically correct mainstream US, the new global paradigm is "Everyone's a loser."
I've admitted here to being thoroughly baffled with bullshit.
I will say though copper an base metals aren't buying this shit and treasury yields have largely resisted. Shit is so manipulated, I guess it hardly matters.
Copper is alright I guess, but yes, buy hard assets.
And a shout out to the Unicorn Brigade!
Since one of your two arguements is that Peak Oil is driven by the Illuminatti (the other is that unicorn piss will save us) I wanted to point out that the Major Banking Houses take your side!
Citi says Peak Oil Theory is Dead:
http://blogs.wsj.com/source/2012/02/17/citigroup-says-peak-oil-is-dead/
LOL
I've never mentioned peak oil here. Not an expert on it do I won't voice my opinion.
'Peak oil' defined as what? Shitigroup I guess swimming in plenty of cheap $103 oil? Whatever.
Reading so much about this elephant shit, there is one thing I've understood.
NOBODY HAS A CLUE, ABSOLUTELY NOBODY WHAT IS REALLY GOING TO HAPPEN.
As per ISDAs president, rule number 1 for CDS trigger:
- DO NOT TALK ABOUT CDSs UNLESS......YOU'VE READ THE CONTRACT.
when you swim in the shit of financial world, you are in bermuda triangle, in the schizophrenic world of short term that eats long term, snake with tail in its mouth. Good luck. ISda president is the king of perverts; he will feel the steel of Odoacer.
Since he can't control the contracts, he can't force his template, it's very possible that his rectum has already run out of excrement. He's trying to squeeze really hard though.
"Rule no. 1 of Fight Club is ... don't talk about Fight Club."
Fine. But when I "think like a criminal," here's what I smell coming:
Okay, I'm just kidding about No. 5. But the middle three items are about 90% probable.
They make the rules. Who's going to stop them from executing this diabolical plan? As far they're concerned, it's a cakewalk.
On your feet, or on your knees!
Prolonged agony is worse than agony.
I curse all these people to a life of unimaginable misery and torment for eternity for the shit they subject us to daily.
If the /ES were to nose dive 100 points...it would still be positive for the year.
How's that for living in a fantasy?
Pretty insane fantasy, seeing as how ES really has no business being over 600 at all. One day, the house of cards with topple over. BTW who is in the bag for that $6 trillion worth of fake US Treasuries I wonder? No one? Irrelevant news story I guess?
Can anyone tell me what this means, please?
thanks om
Courtesy of GEAB:
http://www.leap2020.eu/GEAB-N-62-is-available-Global-Systemic-Crisis-Eur...
"(2) By the way, we point out that LEAP/E2020’s anticipations since 2006 /2007 on Euroland’s emergence due to the global systemic crisis proved to be right; just like our warnings against the forecasts of those who saw, still only a few months ago, the Eurozone breaking up and the Euro disappearing. Remember that on this subject our anticipations have always been founded on rational and objective analyses, respecting the principles of political anticipation methodology, whatever the personal opinions of our team members. It’s that, and only that, which has enabled us, since 2006, to calmly face the dominant thinking or the periods of mass hysteria which always feels outraged by refusals to think like everyone else. In a crisis period, lucidity is essential to try to understand events and their consequences. Yet lucidity is incompatible with “ready to think”, whether dictated by power or fear. By way of an anecdote, CNBC ’s headline on 15/2/2012 on a better Euroland economic performance than forecast by the Anglo-Saxon “experts” was very revealing: “Euroland GNP better than hoped for. What does that mean?”. On the one hand, one can legitimately wonder whether the first part of the title shouldn’t have said “ Euroland GNP “not as bad as hoped” to reflect these “experts’” real state of mind ? And, on the other hand, the question in the second part of the headline sounds like a kind of confession: “and if one had taken our desires for realities?”."
To make it a bit more complicated.
Greece has already some bonds issued under English law (with CAC's already in place).
Hedge funds have already built blocking minorities in these issues...
Expect these to be excluded from PSI and be paid in full ?!?
Tyler, So why wouldn't the remaining $15 million of holdouts filing CAC's just be paid par to avoid a credit event? Is that scenario possible?
So Mar. 10th The banks and everyone the Troika has leverage over is forced to "voluntarily" take the new bonds and on Mar. 20th the hedge funds who are threatening CAC's are paid par and get a huge payout. No CDS triggered.
As the markets march higher and higher!!!!!!!!!!!!!
speaking of "parting out" nations, today is the libyan revo anniversary, BiCheZ!
and, in related news, the government declared today that the anniversary of the Feb 17th uprising will be officially celebrated on the 18th, even though the entire rest of the nation has already decided to celebrate it, today...
well well well... nothing that a few "fake" one-billion Dollar treasury notes can't fix?
Who really knows how much debt the US has created since 1913? Anyone?
Who says that number on the digital debt clock is the true amount of debt? Sure, it's ticking but is it even ticking correctly?
What is backing the debt? What is backing the currency? They took it off the gold standard but even before then, they could have told us anything and we would have had to believe it.
Wars are expensive. Growth is expensive. Wealth is expensive. Why is the US with only 330 million people the richest nation on the planet and why is US "GDP" accounting for half the world's GDP combined?
BECAUSE THEY SAY IT IS!
The wars of 1914-1918 and 1939-1945 were FINANCED. That means that money had to be "created" to pay for the materials, the labor, the transportation, the compensations and so on. That money was backed by leverage against government debts. The NEW DEAL and great construction projects, the entitlement programs, the Marshall Plan and so and so forth were all backed by government debts.
Is it really so inconceivable that the US government would have sold 6 trillion worth of their debt in 1934? At the end of a Weimar experience with massive amounts of fiat sloshing around (albeit in Reichsmark and not Dollars but do we really know?).
We are all being duped, day after day. They created this monster in 1913 which enabled them to become the wealthiest and most powerful group of people. They organized a conspiracy to print their own money to which they had unlimited access and forcing the rest of the world to accept the paper at face value. Pretty sneaky of these bastards to put the faces of deceased Presidents on the bills and give it more credibility.
Then the same group duplicated the effort by creating the Euro.
Enough said. When are they being overthrown, stripped of their privileges and charged before a People's Court for their acts of treason and decades of theft?
Walkurie, well done. Simple and elegant. There is no way to tell what the exact figures are and insult to injury the mkt used to at least give us the illusion that things are 'priced in' but now I am not sure about that. I appreciate that its a delicate situation in the best of times but now we are just twisting, bending and abusing like they are trying to kill it. Is it because political decisions historically have not had major consequences? Perhaps that there is no real 'out of bounds'? Sure, gas could go to $40, and pint of beer $60 but what really happens? Very little. The mkts are hard enough to work with to make money, now we have the game within the game to figure out how to protect yourself against scenarios we can never think up....since they make them up as they go. I know its shocking bla bla bla, what are they after and what can we do about it?
Is this a practice run for muni-land?
DEAR FRIENDS.. HAVE A LOOK ON CDS'S "PROJECT"
http://www.scribd.com/doc/81979163/CS-Eu-CDS-Flows-07-July-2011-PP
http://www.scribd.com/doc/81979664/CS-Greece-CDS-07-July-2011-PP
pp
i have a very useful gift for all the friends in ZH.
Aristotle Quotes
http://www.scribd.com/doc/81619526/Aristotle-Quotes-PP
PP
Nigel Farage on EU and Greece, interview with INFOWARS
http://www.youtube.com/watch?v=bJZeZ6L6aNY
PP
"CDS will be triggered and we will be told how great it was that Greece avoided a default and that it is an isolated case."
IMO CDS will never be triggered. Imagine the court case and media coverage...."some hedge funds arguing for payment at par...while the poor people of Greece starve.....".
The argument for the ECB / Greek side will be the same as Community Organizer in Chief Oblama - "Shared sacrifice...bitchez!"
Watch the CDS prices for Spain, Italy, Portgual compress dramatically. Hey the left wing facsists control the money printing machines and the courts.....and of course the media.
The Potemkin Village makes a comeback....
Here you can find ALL THE OFFICIAL DRAFTS of the New Loan Facility for Greece.- ( Feb 9 2012 )
http://www.scribd.com/my_document_collections/3496353
Thank you
PP
potemkin village: I wonder how many under 45y.o.know what that is..and those damn us bonds that keep turning up are fake because the secret service says all us bonds are now electronic docs. even those issued in 1932!
the only enemy of the NWO is truth. when Media, judges, DA's and AG's..just act on the truth of what is being done the NWO world falls apart.
of course pb and cash and blackmail used by the reptiles in DC keeps them all willingly blind.
Bloomberg write up on the ECB dealings with Greece:
http://www.bloomberg.com/news/2012-02-17/ecb-said-to-negotiate-with-greece-on-investment-portfolio-bond-exemption.html
Interesting for the article to note that a write down for the Central Banks of the Euroland countries would "erode their capital." How about that? Who knew? The public and populations cannot be allowed to recognize that the geniuses running these central banks which bought these bonds over the last few years could now be looking at about Zero for the asset values. Any bank in the private sector which willingly agrees to go along with this should be liquidated.
There's little mention of the fact that a significant of the CDS buy-sell chains end with Greek Banks -- they were net underwriters -- so that get a nice haircut on their impressive bond holdings AND pay-out on the CDS to non-participants. The numbers earmarked for Greek bank bail-outs ... estimated losses will no doubt turn out to be completely wrong.