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.