Greek Creditors Don't Get the Courtesy of a Reach-Around

Tyler Durden's picture


From Peter Tchir of TF Market Advisors

Greek Creditors Don't Get the Courtesy of a Reach-Around

Only in Greece, can you wipe out €100 billion of debt, and have the new debt that replaces it trade at 20% of face value. 

So 85.8% of Greek law bonds “participated”.  The government intends to use the Collective Action Clause to force the holdouts to participate.  It is unclear if the government has actually used the clause already, or just intends to.  Once they use the CAC, that will be a Credit Event for the CDS.

English law bonds saw participation less than 70%.  The deadline has been extended until March 23rd.  As discussed all along, the English Law bonds gave some protection to holders and that clearly gave them the confidence to hold out.  Given the Event of Default covenants, and the right to accelerate, some bondholders may push to accelerate after the Greek law bonds get CAC’d.

The market now knows that the PSI will be “successful” and a massive amount of debt will be wiped out, but the new bonds are being quoted “when and if issued” at prices ranging from the high teens to mid twenties.   Why are the new bonds so weak?  SUBORDINATION

These new bonds may show up as senior unsecured obligations of Greece, but they are incredibly subordinated.  Bondholders just gave up claims on 50% of their debt.  While the EFSF may (or may not) have the same terms with Greece in their role as co-financer, the rest of the Troika debt is senior.  On March 20th, the ECB and other “protected” entities, are due to receive €4,352,195,000.  Yes, they are releasing some money to Greece, but mostly so it can pay the protected holders their money on March 20th.  Protected entities hold over 30%  of that issue and expect to get paid par.  Real world people can get t-shirts, my central bank got par, and all I got are these EFSF notes and some real low coupon subordinated debt.  It looks like the package is worth about 22 points, which shows how efficient the market is, since that is where bonds have been trading for awhile.

The GDP notes could be interesting depending on how they pay out.  Any economy that can drop 7.5% in a quarter is likely to have a couple dead cat bounces off a low base.  So long as there is no “high water” mark on the GDP notes they might trade like free options on any good quarter, though I expect we will have seen another restructuring before too long as the debt isn’t sustainable, and more and more is held by “protected class” lenders.

For the CDS, once a Credit Event is declared (which it will be) the market might get concerned about the large Gross amount outstanding – it shouldn’t.

More important is going to be the realization that Portugal and Ireland may want similar deals, and why not give them the deals, since the EU now knows they can make banks do whatever they tell them.

Spain is likely to be its own special case and seems to be just waiting for a catalyst to move wider again.  Italy feels far more stable.

The next round of weakness is when bondholders will have to be aware of just how subordinated they are.  Any bonds held by the ECB directly have to be treated as senior to regular bonds.  Any bonds held as collateral for various lending programs will add to pressure as the ECB will have to make margin calls (I don’t think even Draghi can change that requirement easily).


And from Zero Hedge, since so far everything is proceeding just as predicted back in January, we urge anyone who has not read it yet, to peruse Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default World

In other news, we are taking bets on whether Greece will make even one of the "new" 2.6% cash coupon payments before it redefaults. Our money is on absolutely no.

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Fri, 03/09/2012 - 08:19 | 2239088 Theta_Burn
Theta_Burn's picture

This is Greece, rest assured, SOMEONES getting a reach around....Or cac'd. lol


Fri, 03/09/2012 - 09:20 | 2239191 withnmeans
withnmeans's picture

I think the media was ill informed of how the Greek FinMin lied to the bondholders about the participation rate, if the truth was told, they were coerced by saying all other bondholders are doing it "your the only hold-out", "you will get nothing if you don't do this". The circle of lies is getting larger.......... Hmm, BLACK HOLE

Fri, 03/09/2012 - 09:46 | 2239242 mikla
mikla's picture

Holy crap ... deadline extended to March 23 ... looks like the rumors of a "planned-Greece-default" from insider documents where this date was set long ago are true.

Can't say I'm surprised, but I'm definately impressed they have the ability to plan that far ahead to rape the world.

(Date was set at least early February, for example:, or, or do "google-search-for-planned-Greece-default-March-23").

Fri, 03/09/2012 - 10:07 | 2239340 JPM Hater001
JPM Hater001's picture

Ok let's do some quick math:

100 Euro bond

50% wiped

Open market ~20 = another 60% loss

And they are second in line in a true full all out balls to the wall default...which is still imminent.

Do I understand that right tyler?

Fri, 03/09/2012 - 08:23 | 2239092 LookingWithAmazement
LookingWithAmazement's picture

Finally, Greek default will be declared a credit event this afternoon. And now, Total Collapse? No, it's actually good news, as there won't be a runaway by bondholders of the other PIIGS. And only a lousy 3 billion will be involved. Boring world we live in.

Fri, 03/09/2012 - 08:22 | 2239094 GeneMarchbanks
GeneMarchbanks's picture
'Greek Creditors Don't Get the Courtesy of a Reach-Around'

You should use the same terminology when you're on Bloomberg next time...

Fri, 03/09/2012 - 08:24 | 2239096 Tyler Durden
Tyler Durden's picture

Are you implying Zero Hedge editorial standards are.... loose?

Fri, 03/09/2012 - 08:29 | 2239104 disabledvet
disabledvet's picture

no. just wide.

Fri, 03/09/2012 - 09:46 | 2239263 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Hey, is Marla Singer still around?

Fri, 03/09/2012 - 08:23 | 2239095 Tortfeasor
Tortfeasor's picture

UK law bond decision due after march 20? Huh?

Fri, 03/09/2012 - 08:32 | 2239109 disabledvet
disabledvet's picture

well I say it's HIGH time for a little INSUBORDINATION then!!
"there ya' go" all you holdouts out there!

Fri, 03/09/2012 - 08:37 | 2239115 RSDallas
RSDallas's picture

Greek officials created all of this worldwide anxiety and basically destroyed their local economy only to end up establishing a new bond that appears to have lost 80 percent of its value??? Back to the streets people!!!! These bond holders will eventually loose everything.

Fri, 03/09/2012 - 08:59 | 2239160 All_Is_Well
All_Is_Well's picture

They lost it all as soon as they agreed!

Fri, 03/09/2012 - 08:44 | 2239124 eddiebe
eddiebe's picture

Look folks, this is a real wake up call to all who didnt get it before: Only banksters and insiders get to make money in the sovereign bond markets, everybody else gets the reaming, no reach around. I would say the 30 year bull in the U.S. bond is nervously looking over his shoulder for a very hungry bear.

Fri, 03/09/2012 - 09:06 | 2239174 bdc63
bdc63's picture

I suspect the long assumed extinct "bond vigilante" will be making a strong comeback in the near future

Fri, 03/09/2012 - 08:51 | 2239146 blindman
blindman's picture

subordination, is that a term of enslavement?
in a game where some play with other's limbs
(members) and
some play for/with their own?

Fri, 03/09/2012 - 12:10 | 2239737 pilager
pilager's picture

Hmmm. Since the dildos sold out their country to enslavement wonder how I can get myself cute little Greek gal or should I hold out for a Spanish Senorita.... the complexity of the sellout. Control Your destiny, control your freedom.

Fri, 03/09/2012 - 09:01 | 2239164 blindman
blindman's picture
"..the fiat money systems mechanisms, parties involved,
have been removed from the risk of loss entirely
and as such they no longer bother with these calculations, concerns or
consideration. now, there is no "economy" as economy is nothing if it is
not a calculation of loss, gain and potentials thereof.
the problem with the bankers is they are frauds as they claim to
lend what they do not have, own, to people who do not know what they need
or what it is they borrow.

Fri, 03/09/2012 - 09:03 | 2239165 LongSoupLine
LongSoupLine's picture

payback's gonna be a hot-flashing bitch when bond demand desire (by bond issuers) comes back into play...and it's coming faster than most realize.


edit: as I wrote this, Juncker announced CAC will be activated...duh.

Fri, 03/09/2012 - 09:05 | 2239171 Ignatius J Reilly
Ignatius J Reilly's picture

Tyler(s), you are funny.

Fri, 03/09/2012 - 09:15 | 2239187 flyonmywall
flyonmywall's picture

What's a "bond vigilante" supposed to put his/her money in? Bonds are subordinated to central banks, stocks are manipulated. Lots of pension funds and mega-mutual funds are required to have investment grade securities, but if they are subordinated to other entities, what is their rating ?

The only thing to buy would be tresuries or JGB's, which pay crap for interest rate.

This will end badly.


Fri, 03/09/2012 - 09:35 | 2239215 eddiebe
eddiebe's picture

What the greek tragedy is showing us is that things will end badly for sovereign bond holders. What has been assumed to be safe has been shown to be worth 20% or less, not even counting inflation risk. I would say this is a real game changer for anyone with eyes to see.

Fri, 03/09/2012 - 11:57 | 2239690 Dingleberry
Dingleberry's picture

"bond vigilante"?  What's that? I seem to have heard a myth about them back in the day....

Fri, 03/09/2012 - 09:28 | 2239203 Commander Cody
Commander Cody's picture

The jackals are in charge.  Their public faces are, among others, Draghi, Monti, Venizelos,and Papademos.  Those who are in the club will drain all they can from those who are not.  And, there is nothing anybody can do about it.  Carry on.

Fri, 03/09/2012 - 09:37 | 2239224 asteroids
asteroids's picture

What a sad day for Greece. After this, they are still broke with no hope. The odds of another "rescue" package look slim.

Fri, 03/09/2012 - 09:39 | 2239235 Seasmoke
Seasmoke's picture

so the dominos begin to fall today

Fri, 03/09/2012 - 09:49 | 2239274 eddiebe
eddiebe's picture

Never let a good crisis go to waste. We can guess who the loosers will be( again).

Fri, 03/09/2012 - 10:21 | 2239376 rsnoble
rsnoble's picture

Would someone please explain this shit to me I am getting a headache.  All the headlines read "greece is saved" yet they have extended the deadline........which I said they would. there not enough participation yet or wtf is going on?  In other words is the default still on the table or is it a remote posibility?  Everyday it's contradictory and im growing tired of keeping up with it.

Fri, 03/09/2012 - 10:40 | 2239437 ZeroPower
ZeroPower's picture

Local-law bonds are already done and decided for (>75% participation was reached, the very few holdouts will be CAC'd). Its the UK-Law bonds which have been extended and, quite frankly from my and quite a few other's perspective, are the real thing that will matter come the next few weeks re volatility.

Still too many holdouts waiting to be paid out at 100 on those bonds. They might just get it too:)

Fri, 03/09/2012 - 10:48 | 2239458 rsnoble
rsnoble's picture

Thx, lol.  As of today I wasn't aware there was a local and UK, all i've heard is they need 70% and got it.  Like I said this is growing old. Have a good wknd!

Fri, 03/09/2012 - 10:55 | 2239482 ZeroPower
ZeroPower's picture

No worries - alas many a retail investor are only being told about 1 side of the coin from their news outlets. Thankfully ZH has been ahead of the curve for a while re these GRE bonds, and its funny to see Bbg and Reuters finally catching on as they might - gasp - even post about these foreign law bonds soon enough, as soon as the punchbowl has been completely filled of course. These UK-law bond holders, and eventually the other PIIS countries who want to wipe their debts "clean" like Greece (if Gre got special treatment, why can't they??) will be what to watch for in the coming months.

Fri, 03/09/2012 - 11:56 | 2239687 Dingleberry
Dingleberry's picture

NEVER CHASE YIELD.  Understand??? Now can someone tell me how much collectively these hedgies invested and how much they lost?  Was it their money, or did Uncle Ben give it to them for free? Ditto for the ECB? 

Fri, 03/09/2012 - 12:08 | 2239723 Commander Cody
Commander Cody's picture

This much is certain: The hedgies risked OPM.

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