Some Thoughts On 'Not Paying' Greek PSI Holdouts

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors,

If Greece decides not to pay the holdouts that is fine for anyone with basis package on (which I think is the bulk of the $3.25 billion of net CDS still outstanding).  In fact a hard default is probably better for those basis package holders.  If Greece uses the CAC clause and gives everyone new bonds, the CDS will settle against the "cheapest to deliver" bond, which, depending on shape of yield curve, etc., would be the longest dated of the new bonds.  There is some risk that the new bonds trade at a level that is high enough that the CDS basis holders don't get 100  (they get 15 + 31.5% of average new bond price + (100 - cheapest to deliver new bond).  There are scenarios where they could get more than 100 in total.  It is also dependent on FX moves (the CDS is in $'s).  It is tricky, but if they get defaulted on, their bonds would remain outstanding and could be used as cheapest to deliver, ensuring a package value of close to 100.  So basis holders are unlikely to be swayed and may even prefer this.

There is nothing to stop Greece from paying the ECB on their bond holdings while not paying other bondholders.  There should be, but there probably isn't.  On the other hand it looks even worse than the PSI and may give English law bondholders some chance to get recourse against the ECB for their special deal.  Maybe they should argue that it had to be done as a tender to all bondholders and wasn't.  In any case, the hard default will make the situation even more strange than using the retroactive CAC law.  They seem to be able to do anything they want, but this will be messier for everyone.

I remain skeptical of anything anyone says in Greece, because they really don't seem that organized.  The length of time it took to get a complex exchange offer out is a shame for them, because it will likely cut back on the ability of some small institutions to process the "invitation" even if they wanted to meet the deadline.  Also, since November, didn't someone think to make a creditor committee that holds more than 20% of the debt?  On something where they have know all along they want/need 90%, couldn't they have found some more large holders to form the committee?  And with banks pretty much forced to agree to anything, with Greek banks being the most desperate, don't you think they should have got some more hedge funds involved?  Some of the funds that might actually vote no could have been involved?  Again, first PSI was last summer, but it became an integral part of the bailout back in November.

Confusion reigns supreme, though we are probably due for a China saves the world rumor any moment now, because too many people enjoy the fact that we haven't had a 1% down day yet this year.

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knight99's picture

Tyler,

Your thoughts on the link below are appreciated. If CAC is used could they still find away NOT to pay on CDS bascially killing the CDS market?

 

http://seekingalpha.com/article/412921-how-all-cds-are-at-risk-for-not-paying-out?source=email_authors_alerts&ifp=0

redpill's picture

I predict deliberate, massive, chaos so that no one has any idea what is going one while the ECB sneakily makes sure all bankster buddies are taken care of and then lets the shit hit the fan.  Should be interesting, sure beats watching TV.

kaiserhoff's picture

Like a monkey fucking a football;)

Winston Churchill's picture

More like a monkey fucking a porcupine !

candyman's picture

Nobody can write a script like this, Fking real life theatre, a page turner. I cant wait for the climax!

RSloane's picture

Yup, like by the end of the week.

Buck Johnson's picture

Bingo, that is exactly what will happen.  When it happens they will be looking to turtle and protect themselves and their banking buddies so that they can come back out and buy stuff up for the cheap, and even change laws.

Fortunes Favor's picture

No 1% down on major avgs but the hollowing out of the Bull has been going on since beginning of Feb. THe transports have been leading the way lower. 

http://seekingalpha.com/article/391391-stalking-the-bear-trouble-in-transports

treemagnet's picture

So, apparently the right people haven't been fucked over enough to pull out the keystone on this deal is how I'm reading this.  Who's next up on the food chain?

Gene Parmesan's picture

Has Greece actually been relieved of its gold yet?

oogs66's picture

They probably lost it ages ago and didn't know

Gene Parmesan's picture

They should make sure to check under all the rocks and stuff at the bottom of the big tank at their National Aquarium.

txsilverbug's picture

Too expensive to transport, waiting on cheaper fuel prices.

Ted Baker's picture

RUMOUR HAS IT:- THE SMART GUYS ARE PREPARING FOR THE WORST AS THE THE DEAL IS BOUND TO FAIL AND GREECE WILL DEFAULT RATTLING MARKETS WORLDWIDE - FRIDAY WILL SEE THE OLD BLACK FRIDAY AND THE 2008 LEHMAN COLLAPSE STYLE AS LESS THAN 75% OF PARTICIPANTS WILL FAVOUR THE PROPOSED DEAL HENCE TRIGERRING THE CDS WHICH AT THE MOMENT ISDA HAS NOT CONFIRMED IN WRTTING THAT A DEFAULT WILL NOT TRIGGER THE CDSs

HelluvaEngineer's picture

I LIKE THE WAY YOU TALK CAN YOU TELL ME MORE

fonzannoon's picture

Holy shit I just laughed so hard.

CrashisOptimistic's picture

Loud Ted spells Favor and Rumor with a OUR.

StychoKiller's picture

One should NOT make fun of the keyboard-challenged (notice the lack of punctuation?)

Jacks Cold Sweat's picture

HelluvaEngineer coffee  exited my mouth @ 7 Mach

bdc63's picture

... sounds market bullish to me! ...

Moneyswirth's picture

THIS IS BRILLIANT YOU'RE SO FUCKING SMART

jcaz's picture

WAY-TO-STAY-ON-POINT-TED-BAKER-NEWSFLASH-APPLE-SET-TO-RELEASE-NEW-IPAD-WILL-HAVE-FULL-KEYBOARD-INCLUDED-AT-BASE-PRICE

Dr. Kananga's picture

Ted, as much as I warmly enjoy the scenario you've painted (the screaming and yelling from the dungeon is a very nice touch too), it's been pointed out time and again around here that there is no 'trigger' to pull on CDS.

As I understand it, the ISDA has to declare such things... after deliberating... with much, much deliberation... maybe for a long time... in a bunch of different places... and perhaps a study... and it's not entirely certain around here that they will declare an event (which also would have severe ramifications for CDS and bond markets.)

We've gone through the looking glass.

crawl's picture

I'm waiting for the good ole 3pm rumor to send the markets on a rocket ride to close in the green.

noob's picture

Whee!!! First post. This is fun

bobola's picture

Pay of all your debt and buy some physical PM.

It then gets even more fun.

txsilverbug's picture

You must be from the government to believe that you actually have the first post.  I read on ZH that you indeed were not the first post.  Just like the federal government, you will continue on believing you were the first post.  Are you planning on issuing any 'first post swaps' to insure your first post status?  If you must keep declaring false first posts, you must understand that the value of your first posts will continue to decline.

noob's picture

It's now past 3:00pm, what do you make of that?

StychoKiller's picture

Depends, are we talking 4:20, or happy hour? (Perhaps there's no difference!)  :>D

Nobody For President's picture

The PPT , with no rumors, took a shot at it at 1550, but it was way too little, and way too late. 

Dow down +200, 1.57%

S&P broke 1350 to 1342 down 1.54%

etc.

Bloodbath day...

mogul rider's picture

The fact that idiots are buyign CDS's after this is the real joke.You get bent over and go back for more. OMFG

The financial world just proved they are nothing but retards

youngman's picture

They buy more to show the regulators they are covered in case of anything....its all dog and pony smoke and mirrors show now...

Dr. Kananga's picture

As far as I can tell, there's only two uses now: (1) using it for accounting tricks, and (2) accumulating a blocking stake to push the PSI negotiators and the rest of Europe into a corner.

Hedgetard55's picture

Even the freaks don't want no Greeks now.

kito's picture

wake me when dow drops below 10,000. thats my signal for all hands below deck......

Stanwick's picture

Tight stop for a tight ass

Joebloinvestor's picture

The rumor mills are spinning today.

Over 1 TRILLION EUROS of exposure!

Well what the fuck does anyone expect when they leverage a bunch of crappy shit that no one pays any attention to as long as they are collecting fees?

If the EURO zone collapses over Greece, then they deserve it.

If the US economy collapses over Greece, WE REALLY DESERVE IT.

The scam was complete when they were able to buy debt and show it as an asset.

carbonmutant's picture

Referendums Bitchez..

Moneyswirth's picture

Awesome.  CONTAGION!  WAR!  FINANCIAL COLLAPSE! SOCIAL ROT!

Ides of March BITCHEZ!

Mercury's picture

There is nothing to stop Greece from paying the ECB on their bond holdings while not paying other bondholders. 

Then...how can they resist the temptation?  Will the chaos they will cause by effectively blowing up sovereign bond insurance be enough to keep their finger off that trigger?

If that's their idea of an orderly non-default it certainly seems a lot worse than the "disorderly default" they're trying to scare us with.

kaiserhoff's picture

They do seem to lack any concept of "The Morning After."

Mercury's picture

< dupe print >

j0nx's picture

You either pay or you puck.

youngman's picture

Do you really think TPTB will let a banker lose money....we will see the last minute plea for government bailouts as the sky is going to fall screams from the bankers boardrooms to the politicians.....they will be saved again...and again..and again....its the Joe saver and middle class taxpayer that will pay the price for the banker follies.....the 50% on welfare.,....hell they have no idea what is going on....good luck all...got gold and silver...we are getting closer every day..when we see banker against banker..we know the water has hit the level of their staterooms and the ship is sinking fast....

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Kill all financial oligarchs.

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