Portugal Reenters Bailout Radar As Traders Realize Greek "Rescue" Model Is Not Feasible Here

Tyler Durden's picture

Remember when Europe was fixed, if only for a few weeks? Those were the times, too bad they are now officially over. EURUSD is back under 1.30 in thin volume because even as we "shockingly" find that, no, Greece did not have the "upper hand" since Greek bondholder negotiations just broke down (and that over the matter of a cash coupon delta between 3.5% and 4.0%, which implicitly means that from a bondholder IRR perspective, when taking a 15 cent EFSF Bill into consideration, the hedge fund community fully expects the country to be in default even post reorg in at about two years). But it is that "other" European country which was recently junked by S&P (causing the 10 year to soar to new records), that is now the focus point of (re)bailout concerns. Reuters reports: "The euro nudges down some 20 pips to $1.2995 in thin, illiquid trade with Tokyo dealers citing renwed fears Portugal may need a second bailout. Undermining the glow of Lisbon's achievements in reforming the country's labour market is the rapidly rising market concern that it is the next potential candidate to default in the euro zone after Greece -- a point that is fast becoming clear as Athens approaches the end of its debt restructuring talks." And here is the paradox: if Greece succeeds in persuading the ad hoc creditors to accept a 3.5% coupon, which it won't absent cramdown and CDS trigger, Portugal will immediately if not sooner proceed with the same steps. There is however, a problem. Unlike Greece, where the bulk, or over 90%, of the bonds are under Local Law, and thus have no bondholder protections (a fact about to be used by Greece to test the legal skills of asset managers who can retain the smartest lawyers in the world and generate par recoveries on their bonds in due course), in a generic Portuguese Euro Medium Term note Programme prospectus we find the following:

Oops: negative pledge (a simple one at that, not that garbled monstrosity of verbiage that some Greek bonds have) and UK-law. Looks like the Greek Modus Operandi of dealing with its uber-leverage problems will be quite hindered (read impossible) when its comes to Portugal, where a substantial portion of its sovereign debt actually does have significant creditor protections. It also means good luck not only trying to enforce a coercive cram down, but also attempting to layer on a primed piece of debt with liens on top of the EMTNs (i.e. IMF bailout capital), without every asset manager in possession of these bonds suing the country into oblivion at a London court of law.

Finally look for creditors to flock to these bonds at the expense of any other bonds (Interbolsa, older issues) that do not, as we predicted over the weekend.

So much for the Greek deleveraging case study applied to other European countries: think fast Troika.

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Manthong's picture

Looks like a reasonable legal solution may be at hand.



phungus_mungus's picture

Wait a second... Bloomberg, CNBC and Reuters all said this was over last week??!??!




My bailout is bigger than your bailout. 

The Big Ching-aso's picture



Portugal, soon to be Tortugal.

disabledvet's picture

That's a third financial weapon of mass destruction with timer set and no way to turn it off. Next stop: "the core."

francis_sawyer's picture


Yeah... Speaking of Spain (and looking ahead to the rest of the core), are they more like Portugal (settled in London), or a garbled monstrosity like Greece)?

Might as well cut to the dominoes...


Tyler Durden's picture

That's the $64K (worth of Alpha) question.

One does one's homework -> one makes $$$

Silver Bug's picture

It's QE to infinity, there is nothing they can do about it!



The Fonz...before shark jump's picture

Oh shit we forgot about Portigal!

Manthong's picture

Tossing its tapas?

Puking its pollo?

Hurling its huevos?


Kaiser Sousa's picture

let's get this party started right....


The Fonz...before shark jump's picture

You know what's funny while we focus on the Europe...Illinois is busted out they owe 27 billion in bonds and have about 8 billion in unpaid bills...over 60 billion owing to pension funds...ex governor was a crook and the name escapes me but who was the doucher senator from that state?

Hansel's picture

I think a lot of the Euro fixation and rating agency charades are to divert focus from the domestic bond market.

jeff montanye's picture

doucher demeans a useful (at times?) device.  he is a despicable criminal who should be jailed for life.  ditto g.w. bush.

disabledvet's picture

Watch as half a million former Chicagoans wander into Wisconsin. Indiana will be right behind--with a desperate struggle for Columbus...which is a huge City btw...getting underway.

Sandmann's picture

When these Bondholders go mad in court they should recall that only England has a Court of Chancery and that the Supreme Court in the European Union is The European Court of Justice in Luxembourg which can be very quixotic

Non Passaran's picture

I wouldn't be surprised if Eurocrats have already started scheming how to make the UK (and it's courts) more "cooperative".
The F.U. compact requires Ireland to "harmonize" (increase) taxes. Who knows what will be asked of the UK.

jeff montanye's picture

f. u. compact?  freudian slip?

Sandmann's picture

The UK does not have a unified legal system so that would be hard. Since the European Court of Justice is the SUPREME COURT your point is bizarre

Hansel's picture

Am I the only one that thinks suing a sovereign country, especially in a foreign court, is mental masturbation?  Are the hedge funds and lawyers rich enough to hire mercenaries to 'extract value' from Portugal if it comes to that?  And if you say that Portugal would risk being locked out of the bond market if they didn't submit to whatever some London court thinks, aren't they already shut out?

CrashisOptimistic's picture

That's not the issue.

People simply HAVE to get their mind wrapped around THE ONLY THING THAT MATTERS.

If Portugal's credit goes to shit and they refuse to accept the findings of a London court . . . THEN NO ONE WILL SELL THEM OIL.  They will have no money to pay for it.  They run a deficit.  It is substantially oil imports.  Without oil, food doesn't transport and they have people die.


Caviar Emptor's picture

Portugal yield spreads over Bunds began to blow out last week (as reported by Reuters, posted by me). There was a definite Greece-domino effect. If Tyler is right and Portugal can't reasonably force haircuts, then the only remaining solution will be a troika bailout funded by money printing. And an awful precedent that would set because all future issuance would have to be backed in the same way. Hence the Euro spiral of austerity and lower growth would be imposed to "pay for it". And pay for it they will with political repercussions

CrashisOptimistic's picture


Germany.  Germany.  Germany.


Calmyourself's picture

The choice would be immediate cuts to gov spending to below taxes paid in.  At that point you have a surplus that can be used for commodities.  The banks and hedgies get stiffed, as wel l as the elderly, retirees, heck most of those promised unsustainable goodies, that simple.

SomethingWicked's picture

That’s like saying ,“The murder was just a little bit grisly” or “The FED is only slightly incompetent”.

John_Coltrane's picture

Indeed, if you're going to say screw you to your creditor you better be self-sufficient, (true for individuals and soverigns).  Otherwise the court will allow the creditor to intercept any payment you make in the future (as your very nice oil example suggests).  All payments must be cleared through the financial system. 

So, consider, what does Portugal (or Greece for that matter) have to barter with, say Iran, for crude?  Can they refine it themselves?  Can they produce all the food they need as a nation, all the medicine etc.?  

Solution: hard work and austerity, savings and production.  Not the strong suit of any of the PIIGS.

StychoKiller's picture

I seem to recall that Portugal possesses a large amt of Au...

disabledvet's picture

This is a good observation...and get's to the point of "this why we destroy small countries in Europe." (to wit: Portugal, Greece, Ireland) in other words this has always been about getting the money back and NOT "bailouts." of course once the country is..."wiped off the map"...then what? Some "union"!

Calmyourself's picture

How many divisions do the banks & hedgies control?  It's the only way to enforce a judgement against a sovereign.

Timmay's picture

"We can pay the debt" becomes...

"We can't pay the debt" becomes...

"We won't pay the debt" becomes....


Gamma735's picture

Fun with Fiat Currencies.  Everybody has their wealth stolen!

stirners_ghost's picture

As soon as gold and silver are adopted as the legal tender, they are invested with an altogether new utility. By means of this new utility, whoever monopolizes the gold and silver of any country - and the currency, as we shall soon discover, is more easily monopolized than any other commodity - obtains control thenceforth over the business of that country; for no man can pay his debts without the permission of the party who monopolizes the article of legal tender. Thus, since the courts recognize nothing as money in the payment of debts except the article of legal tender, this party is enabled to levy a tax on all transactions except such as take place without the intervention of credit.


-William Batchelder Greene (1870)


ghostfaceinvestah's picture

Can't be long before the Irish start asking for haircuts too.

bob_dabolina's picture

OWS too, they're entitled to haircuts just like everyone else.

jeff montanye's picture

ows on one side of the coin, ron paul on the other.  being used to remove the screws holding the hinges of the door.  


JW n FL's picture




Vincent Browne v The ECB

SOOOOOOOOOOOOOOOO  Worth the time to watch!

God Bless Vincent Browne!! and the People of the Ireland!


forexnovaco's picture

the irish people werent complaining about the benefits of there ultraleveraged banks prior to the financial crisis when the were enjouing 6%growth. Now that everything goes bust its not their fault and germany should pay.... hmm think thats just fair for the german people who have a lower growth prior to the crisis because they didnt lever up so much. and think about what happens when these irish banks go bust ireland as a whole goes bust. reality is a bitch i would say

such an ignorant reporter

disabledvet's picture

They got phucked. Open your eyes.

forexnovaco's picture

yup but deal is deal. so thats no reason to fuck the germans too.

and by the way ireland is one of the biggest recievers of EU funds (not bailout funds) in proportion to their GDP and guess what who has to pay the most. a little hint it starts with G.

why is it that germany always has to pay when somebody screws it up because it has the money (lol sarc) to do so but only because they acted a little bit more prudent than others.

acompletedouche's picture


ES should be up 50 handles by 3am!

Pancho Villa's picture

The European economy may be going down the tubes, but at least there will be plenty of work for barbers there considering all the haircuts that bondholders are going to be taking.

As you walk down the street in the financial district of a European city and you see someone who looks like a skinhead wearing a (rather shabby) business suit, you will know that he is a holder of European bonds.

Al Huxley's picture

Just going to reiterate a comment I made earlier - you don't need anything other than common sense to understand that lending Portugal (or Greece, or Italy, or Spain, or England, or the US for that matter) is a bad fucking idea. Listen - they're broke - if you lend them money, you're not going to get any of it back - no fucking principal, forget about the interest.

monopoly's picture

Al, that was great. Here we have Obama, Geithner, The Bernank, Sarkosy, Merkel, our Congress and the ECB and you advise "common sense". We figured that out long ago. Common Sense is not something that most politicians posess. Actually, if they had common sense they would never be a politician since they probably have a modicum of intelligene. Now if you want to discuss Thomas Paine and "common sense" back in 1776 when we had real men and adults trying to gain freedom from British rule. Well, then I will listen to you about common sense.

Otherwise, keep stocking up.

Caviar Emptor's picture

They're all heavily used hoes at a beauty contest. Who isn't broke? Utimately the money to back the broke sovereigns comes off the US Fed money tree. If they go full retard then yields on Portugal debt should be equal to US debt. And if they fail then one more domino falls.