"No Deal" - Greek Bondholders Do Not Think Agreement Can Be Reached Before "Crunch Date"

Tyler Durden's picture

Update: the NYT chimes in, just to make the point all too clear:

Hedge Funds May Sue Greece if It Tries to Force Loss

 

Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.

 

The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

 

The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.

 

Legal experts suggest that the investors may have a case because if Greece changes the terms of its bonds so that investors receive less than they are owed, that could be viewed as a property rights violation — and in Europe, property rights are human rights.

 

According to one senior government official involved in the negotiations, Greece will present an offer to creditors this week that includes an interest rate or coupon on new bonds received in exchange for the old bonds that is less than the 4 percent private creditors have been pushing for — and they will be forced to accept it whether they like it or not.

 

“This is crunch time for us. The time for niceties has expired,” said the person, who was not authorized to talk publicly. “These guys will have to accept everything.”

 

According to one senior government official involved in the negotiations, Greece will present an offer to creditors this week that includes an interest rate or coupon on new bonds received in exchange for the old bonds that is less than the 4 percent private creditors have been pushing for — and they will be forced to accept it whether they like it or not.

 

“This is crunch time for us. The time for niceties has expired,” said the person, who was not authorized to talk publicly. “These guys will have to accept everything.”

Time to remind readers of our definition of nuisance value, long before anyone even considered hedge fund hold outs an issue? Thank you for confirming everything we have said so far.

Original:

Five minutes before market close yesterday, Bloomberg came out with an "exclusive" interview with Marathon CEO Bruce Richards, who may or may not be in the Greek bondholder committee any longer, in which the hedge fund CEO said that the Greek creditor group had come to an agreement and that the thorniest issue that stands between Greece and a coercive default (and major fallout for Europe) was in the bag, so to say. To which we had one rhetorical comment: "Well as long as Marathon is talking for all the possible hold outs..." As it turns out, he wasn't. As it further turns out, Mr. Richards, was just a little bit in over his head about pretty much everything else too, expect for talking up the remainder of his book of course (unsuccessfully, as we demonstrated earlier - although it does beg the question: did Marathon trade today on the rumor it itself spread, based on information that was material and thus only afforded to a privileged few creditors, especially if as it turns, the information was false - we are positive the SEC will be delighted to know the answer). Because as the supposed restructurng expert should know, once you have a disparate group of ad hoc creditors, which is precisely what we have in the Greek circus now, there is nothing even remotely close to a sure deal, especially when one needs a virtually unanimous decision for no CDS trigger event to occur (yes, ISDA, for some ungodly reason, you are still relevant in this bizarro world). Which also happens to be the fascination for all the hedge funds, whom we first and then subsequently repeatedly noted, are holding Europe hostage, to buy ever greater stakes of Greek bonds at 20 cents on the dollar. Because, finally, as the FT reports, the deal is nowhere in sight: "Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive... Even members of the committee concede the process is unlikely to succeed in time for the crunch date: a €14.5bn bond repayment falling due on March 20." But, wait, that's not what Bloomberg and Bruce Richards told us yesterday, setting off a 100 point DJIA rally. Time to pull up the Einhorn idiot market diagram once again.

Once again: here is why one should never trust the media, especially when it is serving ulterior conflicted interests. From the FT:

Fraught discussions on Wednesday – led on the creditor side by veteran technocrats Jean Lemierre, special adviser to the chairman of BNP Paribas, and Charles Dallara, managing director of the Institute for International Finance – have hit on a formula with Greek officials that an untested minority of bondholders could yet reject.

 

Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive.

 

Alongside them are insurance companies, fund managers and pension funds that also have little incentive in agreeing to the negotiated terms.

 

Several hedge fund managers that hold Greek debt have said they have not been involved in the talks and will not be agreeing with the “private sector involvement” (PSI) deal – which centres on a 50 per cent loss on bondholders’ capital and a reduction in the interest they receive.

 

Alongside them are insurance companies, fund managers and pension funds that also have little incentive in agreeing to the negotiated terms.

 

The creditor steering committee Mr Lemierre and Mr Dallara head represents bondholdings worth an estimated €155bn of Greece’s outstanding €260bn debt. That leaves a further €50bn or so of such uncanvassed private bondholders once European Central Bank and eurozone national central bank holdings are excluded, according to estimates by JPMorgan.

 

It is these private bondholders that must now be brought on board for a negotiated settlement if the Greek government is to succeed in its goal of a “voluntary” debt swap on its full borrowings and avoid a default.

 

“The [expected] agreement is a short-term fix. The market will be happy with it for a few days or a week but then we run into the hard stuff,” said an executive at one multibillion-dollar hedge fund that owns Greek bonds and has not been party to the negotiations. “The hard part is going to be getting the rest of the bondholders [outside the creditor committee] to agree.”

Punchline in 3...2...1...

Even members of the committee concede the process is unlikely to succeed in time for the crunch date: a €14.5bn bond repayment falling due on March 20.

And here is why naive Bloomberg reporters should not report anything and everything they hear hook, line and sinker:

“As a firm we are not convinced that any deal today is the last deal,” said Robert Rauch, director of research at the $2.7bn hedge fund Gramercy, which led negotiations for bondholders in the restructuring of Argentina’s debt in 2007. “This is a multiplayer negotiation and not all the players are even at the table.”

 

Gramercy is one of numerous hedge funds that say they have avoided buying into Greek debt – even though it has been trading at huge discounts in recent months – because they still do not see it as cheap enough.

The story from here on is familiar to all who have been following our narrative on this matter since June:

The options available to Greece and its advisers, Lazards and Cleary Gottlieb, should full agreement fail are hardly attractive. Foremost among them would be Greek legislation to insert “collective action clauses” into the country’s existing debt stock.

 

Such clauses could be exercised to force a recalcitrant minority of bondholders to agree new terms, but in doing so they could trigger credit default swaps written on Greek debt – a dangerous move that could trip the eurozone into a full-blown banking crisis.

 

Part of the problem was that many of Greece’s unknown creditors were thought to be holding out for exactly such a CDS trigger, one fund manager said.

Translation: subordination cometh. But we will touch upon this topic in two months, when everyone else is talking about it and/or is an expert on it.

And since everyone is now at least a broad bankruptcy expert, or very soon will be, here, courtesy of FT's Sam Jones, is a refresher on bankruptcy negotiations game theory, and why one pretty much never gets what one wants, absent spending 4-7 years in bankruptcy court first:

“There isn’t much of a reason for anyone to agree to the terms precisely because of the threat of CAC clauses,” said a fund manager who owns Greek debt. “If people think they are going to get forced into a deal anyway, then why agree to the terms before you have to? Especially if by not doing so you can trigger your CDS.”

 

Whatever the outcome of negotiations in the run up to March, there is little doubt among many bond investors about the worth of the PSI process.

 

As the Emerging Sovereign Group, a $1bn hedge fund owned by US private equity giant Carlyle, told its clients last year, European politicians have opened a “Pandora’s box” that now looks likely to lead to a “repricing of sovereign default risk across the euro area”.

And with numbers like $500 billion, €1 trillion and even €10 trillion flying around, to make sure the firewall in advance of the Greek default is at least half full, if not half empty, we can guarantee readers that the repricing won't be higher. But it will take stocks the usual 6-8 weeks to grasp what is patently obvious to anyone who has put in even 10 minutes of work in analyzing the complete fall out from Europe that is about to hit.

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homersimpson's picture

Hmm.. I think Nirvana and Pearl Jam were cutting their first albums at the time..

Black Forest's picture

Thank you very much for the Einhorn idiot market diagram:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012...

It makes my life easier. Now I fully understand why the Sun rises in the East, sets in the West, rises in the East, ...

Catflappo's picture

And now you fully understand BoA's awesome trading strategem as outlined on ZH a coupla months ago.   Basically, as long as you are able to correctly identify the Sun in a line-up, you are only a mini-step away from a cushy job in high finance !

Stu Pedassle's picture

"Basically, as long as you are able to correctly identify the Sun in a line-up, you are only a mini-step away from a cushy job in high finance !"

Laughed my ass off at that last line.....

Teamtc321's picture

Are you trying to say that silver rises in the futures and settle's during the day trade? What a novel thought, hmmmmm. 

 

Ron Paul 2012

tmftdoyle's picture

but cnbc's chief international correspondent, mcc, assured us yesterday that based on her reporting that a deal would be done this week!

Mactheknife's picture

CNBC can "report" whatever they want or whatever is wanted for them to "report" but it doesn't change a thing.  This is called checkmate...game over.

navy62802's picture

There are going to be many headlines like this, going back and forth between failure and success for the talks. One day, we'll have optimism toward the Greek situation and the next day, we'll have pessimism. We are going to have to wait until March 20th to find out the truth.

stocktivity's picture

By then the dow should be well over 14000 and approaching a new all time high. The Fed, IMF. ECB all can just print money out of thin air and solve any problem that comes along. It's all Bullshit!

czarangelus's picture

I bought 70oz of silver today. I'm no di Medici, but even a working stiff can come out on top when this tsunami of shit rolls through. If you don't end up getting shot, anyway.

Samsonov's picture

I wonder, since Greek default is the most anticipated event in the history of finance, if it will be a non-event.  I don't have any special knowledge of the particulars, but I have to believe that everyone connected with this fiasco will have taken defensive measures by now.  Who would go down with a ship that takes ten years to sink?

czarangelus's picture

Most of the population, apparently.

stocktivity's picture

Any one who isn't buying stocks evidently

RiverRoad's picture

When they pass it off as a non-event you'll know it's for real.

Stack Trace's picture

That is happening now. It is priced in. Or is it?

falak pema's picture

this beats the Loch ness.

CrashisOptimistic's picture

This is not how collapse happens.  Governments will do anything to keep the juggled balls in the air.  If something is visible, they will fix it, and if that fix requires jail time or murder, they will execute that and absolve themselves of responsibility.

Ask Dominique Strauss Kahn about govts willing to do anything to keep the train rolling.  Or ask Gaddhafi.

All of this is too visible.  Things that can be fixed by a decree and a pistol shot will be fixed by decree and with a pistol shot.

It's things that have no possible fix, regardless of legality,  that will cause the collapse.

Tyranny is Love's picture

Yes! ...Except... if the collapse is intended as part of a larger geopolitical picture. ie Re-engineering society. Then the question is whats the intended timing and can they pull it off.

A system this complex become impossible to control with the usual mechanism as it approaches collapse. All the normal rules cease to exist. Even TPTB may get crushed by the collapse.

bob_dabolina's picture

Oil futures catching a little chubby in AH...a little tent pole pitching

Think we'll get any $102 bids tonight?

I am Jobe's picture

An now for something completely different: WTF

Obama Considering Summers for World Bank

http://www.bloomberg.com/news/2012-01-18/summers-under-consideration-to-...

redpill's picture

God I was hoping that was an Onion article...

stocktivity's picture

Obama has no clue...and the republicans have no answer...unfortunately.

CrashisOptimistic's picture

Factoid:

World Bank senior personnel are entitled to a particularly powerful retirement benefit.  The World Bank will pay full relocation package to Anywhere In The World, and often, that package can include housing subsidy, which can translate to interest free mortgage and supplemental downpayment.

krispkritter's picture

This isn't Kabuki Theatre anymore, it's Kevorkian Theatre...Kill me now! (so I don't have to watch this farce play out). I mean do these guys meet up regularly and have massive circle jerks?  Revolving door doesn't cover it, it's like having Freddy as your neighbor on Nightmare Street. WTF!!!

jcaz's picture

Summers- my hero.... Gives me hope to know that someone so clueless- so obtuse as to not comprehend any of the basic elements of Economics- can always find work.....

So he's blowing Obama now.......

I am Jobe's picture

EU is doomed. WTF. USA keeps pretending . I wonder if there is shows to be made of this.

cnx's picture

I still believe that even if Greek CACs are inserted, the absoultely objective and unbiased ISDA would not be able to recognize this as a credit event. So please cease to count on any CDS trigger in Euroland now and in the future. 

adr's picture

I read an article on Farcial Times, cough* Financial Times, that claimed even if a Greek CDS were to be triggered the maximum that would be paid out was somewhere in the neighborhood of $8 billion. I nearly spit soda all over my computer.

Really if all this nonsense was over such a paltry sum, then $50 billion in Fed pocket change could fix the entire European problem. Surely we can't have a global financial collapse because hedge funds couldn't hedge $8 billion properly. Greek debt is trading at 410% because a CDS would cause an $8 billion credit event? Really?

The stories are already being written to write of what was a doomsday scenario a few short months ago as being nothing but a tiny speedbump. Next we'll hear stories how the housing market in the US is rebounding so fast that property values should triple by 2013, and the American consumer can handle $400 per barrel oil just fine.

ucsbcanuck's picture

I asked the same qn myself - USD 8 bn? Is that it? Then why don't you just say that's it and let's move on?

I think it's the precedent they're concerned about - because then the question becomes - who's holding the CDS on Portuguese bonds? Spanish bonds? Italian bonds? Who's exposed? BOOM! Panic!

jcaz's picture

Bingo- this was never about Greek paper- it's about all the crap leveraged against it-  a black hole that no one wants to even begin to contemplate.....

If this was just about Greece, then ya- write a freaking check and be done with them....

Desert Irish's picture

But who has CDS's exposure on the banks with the most CDS exposure to Greece......that's is what is scaring the crap out of everyone.

chunga's picture

Off-Topic...but I gotta do a paste and run on this. Fuck you Bank of America.

Bank of America CEO Moynihan to be Named as Defendant in Federal Foreclosure Lawsuit

I hereby accuse your bank, or one if its functionaries, of altering the original document, which is a crime in the State of Rhode Island, and then recording the altered document in the Narragansett Rhode Island Registry of Deeds for the sole purpose of illegally foreclosing on Mr. Brady's property.   This too is a crime.   I hereby impute this crime to you as the Captain of the Ship that is Bank of America.

 

            This is but a small sampling of the documentation that I have amassed in this file, but I am certain, that as an educated man, in charge of Billions of dollars, you can see that such practices as working fraud on the Federal Court and the Town of Narragansett, Rhode Island, are not sound.

 

            The gratuitous letter my client received from Mr. Lara, an alleged Customer Advocate in your office, states that "[p]roper foreclosure & bankruptcy notices were issued accurately in accordance with the status of your account."  (attached hereto)  This statement is also imputed to you since Mr. Lara works out of your office.

 

            Let me be clear, I am going to file an action for Mr. Brady in the Federal District Court for the District of Rhode Island and I am going to name you a Defendant.  Let me stress that I do not operate from a position of fear, nor do I stand in awe of you or your company.  The time has come for you to be called to task for your role in the destruction of my America.

 

                                                                                    Very truly yours,

 

                                                                                   

 

                                                                                    George E. Babcock, Esquire

 

 

 

 

 

 

cc:US Trustee for District of RI

     RI Attorney General

     Narragansett Town Solicitor

     Chunga

ucsbcanuck's picture

Bullish. BAC to rise 3% tomorrow on the news. It's already priced in. /sarc off

chunga's picture

Sorry to spam out this thread. I'll wait until the next banking scandal post (shouldn't be long...lol) and put a link so it won't be so spammy and off-topicky.

I just love it to pieces.

Link goes to Hamlet pdf embeds. Advertising Forbidden. No Pay-Per-Click.

AmericanBulldog77's picture

1st Rule of AIDS Club is Don't Talk about AIDS Club. But, they certainly do spread Financial AIDS.

chunga's picture

As Gary might say on Team America - World Police:

"Are there any terrorist plots on Bank Against America out there?"

antisepticWipe's picture

Lick my butt and suck on my balls... Amerika fuck yeah!

Last_2_Sense's picture

Pussies don't like dicks, because pussies get fucked by dicks. But dicks also fuck assholes, assholes that just want to shit on everything. Pussies may think they can deal with assholes their way. But the only thing that can fuck an asshole is a dick,, with some balls. The problem with dicks is that sometimes they fuck too much, or fuck when it isn't appropriate. And it takes a pussy to show'em that, but some times pussies get so full of shit they become assholes themselves, because pussies are only and inch and a half away from assholes. I don't know much in this crazy, crazy world, but I do know that if you don't let us fuck this asshole,,, we are gonna have our dicks and our pussies all covered in shit.

falak pema's picture

there is poetry in porno-scatology?

antisepticWipe's picture

On a long enough timeline everyone with economical aids' survival rate drops to zero.