Greek "Fresh Start" Bonds Face Immediate 80% Loss, 98% Probability Of Redefault

Tyler Durden's picture

As 'news' breaks of over 80% participation in the Greek PSI deal and the apparent optimism that this is somehow a good thing, we note that our analysis of what would happen from two months ago was exactly spot on. As the FT reports, "financial markets were already betting Greece would default again in the future. Grey market “when issued” pricing for the 20 new bonds were ranging from 17 to 28 cents on the euro, a highly distressed level, according to indicative quotes", which just happens to almost perfectly coincide with our view:

"since the Greek Debt/GDP will still be over 120% according to another set of rumors (after all, only a small portion of the country's debt is really getting impaired), it is 100% safe to say that in 30 years Greece will still go bankrupt. So let's say it deserves a comparable yield to its current 30 year bonds, which are priced to yield about 23%. We are being a little generous and estimate the fresh start bonds will yield 20% post break. Which means that according to a generic bond yield calc, the price on the fresh start bonds post reorg will be... 17.9 cents of par, or immediate losses of over 80% the second these bonds break for trading from par."

Simply put, as soon as these 'new' bonds hit the secondary market they will reprice from 'par' down to around 20 cents as expectations of default sooner rather than later (and with 98% inevitability given grey market CDS and bond pricing)  leave Greek bondholders with more losses to come and the Greek people inevitably facing tougher austerity to get the next PSI deal through in perhaps six months to a year...

Furthermore, for those looking at the trend of participation news today and expecting it to rise any further, just as we have noted before many times, the FT confirms:

In addition, the status of the 14 per cent of Greek debt not issued as Greek-law bonds, most of which are bonds governed by English law, remained unclear. According to a confidential analysis prepared for eurozone finance minsters last month, 95 per cent of all bondholders must be included in the debt restructuring for Greece debt to reach 120 per cent of economic output by 2020, the target of its new €130bn bailout.


Greece cannot reach that target with Greek-law bonds alone, and Athens may need to wait until a meeting of foreign-law bondholders at the end of the month to know how many will join the restructuring.

For clarity, here is Peter Tchir (of TF Market Advisors) perspective on the day's events:


Papademos Says Expects Maximum Participation in Greek Debt Swap


I'm not sure why 100% isn't maximum possible, but math and Greek politicians don't seem to go well together.


I expect a number between 75% and 98%. I expect every bank and most regulated entities to vote for it - how many Greek bonds are held by Europe's bad banks and bailed out banks? My guess is it's a disgustingly high number.


Below 75% and my guess is they accept those offers and default on the holdouts - but only after extending the offer for a few more days.


Between 75% and 98% they use the CAC and try and move on. There isn't enough time between now and March 20th to do anything more interesting.


Above 98% I will go and try out for the giants as starting quarterback, because clearly anything is possible. But if it is somehow above 98% (CDS is 1.5% and I expect mostly held in basis and no incentive to agree).


I don't think it makes much difference whether the number is 77 or 95. All we will really learn is if any banks didn't feel obligated or which hedge funds decided the plan was ok. Maybe the market will react differently if it is 77 or 87 or 97 but it really shouldn't.


The Credit Event will settle smoothly. It is the net that matters, not the gross, and the net is relatively small. Any bank that doesn't have money to pay on CDS they wrote, after LTRO is beyond inept. Any banks without enough collateral from any hedge fund that sold them protection is equally inept - though this should be an exchange based product or at least cleared.


The potential knock on effect will be if banks demand larger collateral requirements going forward and if other sovereign bonds start leaking again - especially since LTRO has margin calls of its own.


I doubt we get a Credit Event until next week- as they likely won't do it late on a Friday.


If we find out that the invitation has been extended I would get concerned that they didn't hit the 75% threshold.


Some English law bonds might have to be dealt with separately if there were blocking votes, but there is time for that.

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bugs_'s picture

paging Mr. Vaporized

JPM Hater001's picture

You mean Gross is not Net?

Huh, who knew.

Harlequin001's picture

heh, heh, heh, and gold is still trading at...wait for it... zero from par...

Ahmeexnal's picture

Anonymous "hacks" the Vatican:

How long until Wikileaks/CIA releases evidence that the Vatican Bank is the one holding the gold that was once parked on Fort Knox?

john39's picture

if it does, you can bet that the gold is stored elsewhere, likely in deep bunkers under the rothschild mansions in Europe and Tel Aviv...    

Ahmeexnal's picture

In answer, Nicodemus said to him: "How can these things come about?"

No, they are stored in the vatican vaults. Time to occupy der heilige stuhl


in god we trust NO MORE

resurger's picture

fort knox has gold O_0?!

tempo's picture

No matter how much BS the media puts out on the success of the Greek debt, gold just keeps outpacing equities. MDC coming in below estimates on same store sales can't be good for equities.

macholatte's picture

The road is long, deep and wide.... the can shall be kicked.


'So it is written so it shall be done'

-- Ramses II

Josh Randall's picture

"Can you DIG IT ????"

-- Cyrus

trebuchet's picture

Tyler/Peter the ppoint is: if CAC trigger and CDS trigger and CDS ONLY pay out to holdouts, this is a grand slam success restructuring


Post greece, we can worry about that on monday


So my question is, is that how CDS/CAC is going to work?

spastic_colon's picture

Participation will be 75-85% and CDS overhang about 3 billion....a drop in the bucket

Schmuck Raker's picture

Seems to me "...grand slam success restructuring" might be a bit of a stretch with 120% Debt/GDP after the deal.

delivered's picture

The Warriors. Great movie as maybe the Greek people should start to organize in similar gangs that roamed NYC in the movie. They can band together, bottles on their fingers gently tapping together and chanting to the bankers "Banksters, come out to playyyeee".

Calmyourself's picture

Geez, we are dating ourselves with the Warriors aren't we...  Greek Bondholders come out and play, clink, clink, clink, bondholders come out and playyy..

I hit post, looked up and their you were with yours a little weird..

delivered's picture

Yes we're giving away our age but when it comes to lasting movie quotes, I just can't pass on replying. The timings a little weird, I would agree, but when Cyrus speaks, its time to respond. So we both must of have been listening to a higher voice and thinking about the same scene towards the end of the movie when the villian gang (can't remember their name) met the Warriors on Coney Beach. Just remember how scratchy and edgy the gang member's voice was when he kept taunting "Warriors, come out to playyyee". Of course this individual went on to play Luther in the first 48 hours movie as the wimpy criminal holding out on the cash from Gantz and Reggie Hammond. Hmmm, sounds like this individual would fit right in with the criminal element in charge of the world's financial system.

rlouis's picture

At the end of the alley is a brick wall, do not go there, my son.


Greeks saved from default or default and they will be saved? The whole world is upside down and bassackwards.  And so it is. 

JPM Hater001's picture

Remember that episode of South Park where the Devil was going to fight Jesus and everybody piled bets on the Devil and then he threw the fight and cashed in.

That's what Greece should have done.

Manthong's picture

Here is clarity regarding the ECB/Greek Debt Charlie Foxtrot:

WonderDawg's picture

Their opportunity to do so hasn't passed yet. They still need to get the bailout money, then they can give Germany and the rest the finger. But they won't.

nope-1004's picture

Whatever happens and whatever we are "told", will be a lie.  There will be backroom shenanigans to appear like things went smoothly.

Amazing that no one in the MSM even asks, "why is the predominant talk out of Europe about solvency issues, default issues, and 80% haircuts if all is well?"


Bay of Pigs's picture

"The ECB is well capitalized".

The Bernank

AbelCatalyst's picture

That's one way to do a full write down - new bonds devalue by 80% each round...  Give it three rounds and Greece is almost debt free!!  Can the US do that too?  I wonder what China would think about that?


Silver Bug's picture

For the sake of your future Greece, just default now! It is inevitable anyway!

bobola's picture

Let's say private money now stays away from most sovereign bonds.

Central bank balance sheet debt should start ramping up even faster, right..??

I don't see the advantage of driving away private money, unless the goal is to route it to securities..


bobola's picture

So, the ECB will be the only buyer..??

Bernanke is smiling.......

CPL's picture

No, the US will pay as well, Sterilized QE remember?


mayhem_korner's picture



There is really only one Central Bank, with East and West branches.

Silver Dreamer's picture

The goal is one bank to rule them all of course.

Silver Pullet's picture

Yup. Very close now.


Some researchers are pointing out that Iran is one of only three countries left in the world whose central bank is not under Rothschild control.

Before 9-11 there were reportedly seven: Afghanistan, Iraq, Sudan, Libya, Cuba, North Korea and Iran.

By 2003, however, Afghanistan and Iraq were swallowed up by the Rothschild octopus, and by 2011 Sudan and Libya were also gone. In Libya, a Rothschild bank was established in Benghazi while the country was still at war


Dickweed Wang's picture

Funny how that information gets left out of the conversation when the MSM tells everyone we are supposedly fighting for the sake of the  "people" in those countries.

JohnnyBriefcase's picture

Fucking infuriating is what it is.

Vince Clortho's picture

Yup. The Russia/China vs U.S. thing is a non-issue for the CB leadership.  Great theatre for the debt slaves to think they are giving their lives and money to fight for some great cause.

CNBC can give you the details.

Iran is in a very precarious spot.  The Oligarchy has plans for a branch office in Tehran.  Democracy and prosperity are on the way.  Don't worry about all that messy petroleum.

Wonder who the next "President" of Iran will be?

Sweet Chicken's picture

The whole thing is MF'ed

Burr's 2nd Shot's picture

Finally, something that really is priced in.

Manthong's picture

Well at least they will be liquid at <80%..  the next "bailout" is already priced in.


Wow, such willing participants.  Thanks for playing in our giant global ponzi scheme.  Please pick up your consolation prizes at the door.  

Ruffcut's picture

Keep your consolation prize. Everytime I get one, it is a bag of warm dog shit.

mayhem_korner's picture



I love it when a good transfer comes together.

tekhneek's picture

Why the fuck would anyone lend them money?

nope-1004's picture

It's not money, it's FRN's.  Those in the 'know', know we are headed for a new currency, so lending toilet paper now to delay this pig is a no brainer.


Executioner's picture

Spill out my coffee! +1

Btw, this 80% zh call was really right on the spot. Amazingly precise.

CrashisOptimistic's picture

Because they were told to.  Lend the 30 year money or lose your business license in Europe.

Folks, this sort of thing is not what takes the system down.  Visible things will be attacked with NO LIMITS.  The governments have no limits.  They will do anything.

What will take them down is the item that is slow and inexorable and has no particular deadline.  

flacon's picture

Like the exponential function applied to their "debt-money"?