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"No Deal" - Greek Bondholders Do Not Think Agreement Can Be Reached Before "Crunch Date"
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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Re Hedge Funds May Sue Greece...
And in other Breaking News: Muggers threaten to dismember victims that don't carry enuf cash!
(This NewsFlash sponsored by the Hedge Fund Crime-Watch & Benevolent Assoc Of Greenwich, CT)
When the 1% have stolen everything the 99% have, what is left but the other folks [remember, corporations are "people"] in the 1%?
But, who the fuck cares? China is gonna offer us some Splenda, and the Fed is gonna give us some sugar. Fuck it, who cares property is crashing all around China, or that India is crumbling under the pressure of the reality that its a giant disorganized shithole? Let's play this market to the beat; that is, short when the news sux, and ride the bulls cock when the news is fabricated to placate the douche bags seeking re-erection.
double comment error...
Zero Hedgers keep preaching the end
While the powers find more rules to bend
The data does stink
But I can't help but think
They'll always find more cash to lend
..
..
And speaking of bollocks, beware the barking toad ... http://www.phespirit.info/derekandclive/ad_nauseam_01.htm
One interesting aspect of this ongoing Euro crisis : the inordinate transfer of assets from Eurobank balance sheets to American PDs or surrogates; awash with huge liquidities. The US banks are loading up on Euro assets sold at a discount as they have Zirp.
What Draghi and Monti are now doing are emulating them! The Abbot and Costello show here in Eurozone is helping them as ECB prints by the back door "LTRO" in concert with FED.
Whence the current europhoria in WS banking quarters!
I think the CDS/Greek debt talks are froth and Mafia type last minute haggling. The line in the sand has been drawn and on D-Day Greece, it'll all fall into place. 2012 looks like can kicking will be intense world -wide sport as its election year for O'bammy, and lil Sarkozy. And damn the structural house of cards as deflationary Hell can wait!
TD should fill us in on this take of current financial short term bonanza in US quarters and its implications.
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.
... while ECB (and banks by extension) is exempted from any such haircuts.
How much more blatant can it iget?
It's all about saving banks and screwing everyone else.
This whole Euro sovereign debt fiasco is about saving banks and screwing everyone else.
The whole fucking EU is about making banks rich and making nations poor.
And I wonder who is still buying European bonds? The only entity it could be is the ECB. Every other investor with a brain is sprinting away from European bonds. Yet just this morning, both Spain and France recorded increased demand at their respective bond auctions. Of course this news will be trumpeted by the financial media as a vote of confidence that Europe can fix its situation. However, the reality is that the ECB is buying hand over fist in order to keep the bond market from freezing up completely. No other sentient human being would be purchasing European bonds in light of the way Greek bondholders are being treated.
The fact that there are too damn many banks out there all competing insanely is what fostered this mess. Some of you guys need to FOLD.
Potatoes bitchez!
A garden full of spuds for fresh fries, chips, mash, jacket-bakes, gnocchi, noisettes (excuse spelling), patties, casseroles etc.
Sit back and watch the show unfold with a gut full of tater starch, washed down with tater-wwwodka mixers.
Anyone tried substituting honey for sugar in a home beer brew? Askin' coz I got new bee hives.
Time to dump the markets and invest in field, forest and barn. And maybe some extra beer bottles.