In this followup to Greece Is Trying To Convince Portugal To Make F.I.R.E. Hot [11] I think we should get straight to the point - Anyone who doesn't believe that Portugal is clearly set up to for a bond route, and that it is seriously considering a default is either lying to themselves, believe human nature has changed, and/or really hasn't bothered to review the math. Here's proof of a Portuguese default presented with logic, numbers and pretty colorful graphs. The full spreadsheet behind all of the calculations, scenarios, bond holdings and calculations can be viewed online here (click this link [12]) by professional level subscribers. Click here to subscribe or upgrade [13].
For one, we are on up to the 3rd Greek Bailout [14] (Portugal has only received one hence it could be getting envious:-)). Portugal has had extreme austerity measures inflicted upon it. So extreme that it has materially and significantly depressed the economy. Portugal's GDP growth contracted even further by 1.3% q/q in Q4. Its HICP Moderated to 3.4% y/y in January. Very high unemployment (currently at 14% and rising), weakening wages, and a total dearth of credit to businesses and households (do you really think bond-busted banks are lending to and within Portugal like the good 'ole days) will lead to a downward spiraling self-fulfilling prophecy that is the antithesis of what appears to be driving all of those rosy estimates behind reports that Portugal won't default. I do mean rosy, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! [15] for examples. Let it be known that instead of growing the economy out of the doldrums, Portugal's austerity measures will push it down the drain.
Due to total reliance on funny munny from the ECB, required due to the lack of external financing avialable from the markets (unless Portugal defaults/restructures and starts from scratch, which is inevitable anyway) the Portuguese machine will still be in arrears accumulation mode - a mode which is essentially unsustainable.
Despite what I see as practically unassailable facts, the MSM is still steadfastly and unrealistically bullish, as per Bloomberg, Portugal Bond Rout Overstates Greek Likeness [17]. Well, the Portugal Bond Yield is at 13% Despite Greek Deal [18] - that's right, the 3rd Greek deal and one that include 74% haircut!!! Portugal will default/restructure and there's a very, very strong chance that right behind them will be Spain and then Greece again. That's right, Greece, again!
Who was right about the Greek default, running against the consensus two years ago? See 2010 posts - Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! [19] and then A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina [20]. InThe Anatomy of a Portugal Default: A GraphicalStep by Step Guide ... [21] I walked through the financial tangle that is Portugal about two years ago, as excerpted.
This is the carnage that would occur in the OPTIMISTIC if the same restructuring were to be applied to Portugal today.
[22]
Yes, it will be nasty. That 35% decline in cash flows will be levered at least 10x, for that is how much of the investors in these bonds purchased them. A 35% drop is nasty enough, 35% x 10 starts to hurt the piggy bank! As a matter of fact, no matter which way you look at it, Portugal is destined to default/restructure. Its just a matter of time, and that time will probably not extend past 2013. Here are a plethora of scenarios to choose from...
[23]
This is Portugal's path as of today.
[24]
Even if we add in EU/IMF emergency funding, the inevitability of restructuring is not altered. As a matter of fact, the scenario gets worse because the debt is piled on.
Well, I took said model and updated it with recent historical GDP results as well as projections which incorporated the most recent developments. Do you think things look better or worse?
This is what Portugal's situation looks like today...
The Portuguese bond yield has spiked since the Greek deal. Methinks Mr. Credit market (who is much wiser than Mr. Eqiuity market, probably due to the increased difficulty in manipulating Mr. Credit's demeanor) seems to agree with Reggie...
| Issuer | Issue date | Maturity | Amt Out(M) | Interest Due(M) | Years to maturity | Coupon rate |
| Portugal Treasury Bill | 07/17/09 | 7/23/2010 | 4.50 | 0.00 | -1.64 | 0.000% |
| Portugal Treasury Bill | 09/18/09 | 9/17/2010 | 2.75 | 0.00 | -1.49 | 0.000% |
| Portugal Treasury Bill | 11/20/09 | 11/19/2010 | 3.10 | 0.00 | -1.31 | 0.000% |
| Parpublica - Participacoes Publicas SGPS | 12/16/05 | 12/16/2010 | 0.51 | 0.01 | -1.24 | 2.690% |
| Portugal Treasury Bill | 01/22/10 | 1/21/2011 | 2.05 | 0.00 | -1.14 | 0.000% |
| Portugal Treasury Bill | 02/19/10 | 2/18/2011 | 2.35 | 0.00 | -1.06 | 0.000% |
| Portugal Treasury Bill | 03/19/10 | 3/18/2011 | 2.03 | 0.00 | -0.99 | 0.000% |
| Portugal Obrigacoes do Tesouro OT | 11/16/05 | 4/15/2011 | 4.67 | 0.15 | -0.91 | 3.200% |
| Portugal Obrigacoes do Tesouro OT | 03/13/01 | 6/15/2011 | 4.96 | 0.26 | -0.74 | 5.150% |
| CP - Comboios de Portugal EPE | 02/26/02 | 2/26/2012 | 0.25 | 0.00 | -0.04 | 0.990% |
| Portugal Obrigacoes do Tesouro OT | 02/13/02 | 6/15/2012 | 7.64 | 0.38 | 0.26 | 5.000% |
| Portugal Government International Bond | 08/28/09 | 8/28/2012 | 0.41 | 0.00 | 0.46 | 2.400% |
| Parpublica - Participacoes Publicas SGPS | 07/08/09 | 7/8/2013 | 0.80 | 0.03 | 1.32 | 3.500% |
| Polo III-CP Finance Ltd | 07/29/03 | 7/29/2013 | 0.10 | 0.00 | 1.38 | 4.500% |
| Ana-Aeroportos de Portugal SA | 08/28/09 | 8/28/2013 | 0.10 | 0.00 | 1.46 | 4.050% |
| Portugal Obrigacoes do Tesouro OT | 05/22/98 | 9/23/2013 | 7.16 | 0.39 | 1.53 | 5.450% |
| Portugal Obrigacoes do Tesouro OT | 10/29/03 | 6/16/2014 | 6.00 | 0.26 | 2.26 | 4.375% |
| Polo Securities II Ltd | 06/26/02 | 6/26/2014 | 0.31 | 0.00 | 2.29 | 2.880% |
| ANAM - Aeroportos da Madeira SA | 07/29/04 | 7/29/2014 | 0.05 | 0.00 | 2.38 | 5.340% |
| Parpublica - Participacoes Publicas SGPS | 10/15/04 | 10/15/2014 | 0.50 | 0.02 | 2.59 | 4.191% |
| Portugal Obrigacoes do Tesouro OT | 06/03/09 | 10/15/2014 | 5.32 | 0.19 | 2.59 | 3.600% |
| Portugal Government International Bond | 11/17/09 | 11/17/2014 | 0.08 | 0.00 | 2.68 | 3.064% |
| Parpublica - Participacoes Publicas SGPS | 12/18/07 | 12/18/2014 | 1.02 | 0.03 | 2.77 | 3.250% |
| Refer-Rede Ferroviaria Nacional SA | 03/16/05 | 3/16/2015 | 0.60 | 0.02 | 3.01 | 4.000% |
| Portugal Government International Bond | 03/25/10 | 3/25/2015 | 1.02 | 0.04 | 3.03 | 3.500% |
| Polo III-CP Finance Ltd | 07/29/03 | 7/29/2015 | 0.30 | 0.01 | 3.38 | 4.700% |
| Portugal Obrigacoes do Tesouro OT | 07/13/05 | 10/15/2015 | 7.64 | 0.26 | 3.59 | 3.350% |
| Portugal Government International Bond | 10/24/86 | 5/20/2016 | 0.18 | 0.02 | 4.19 | 9.000% |
| Portugal Government International Bond | 05/20/86 | 5/20/2016 | 0.18 | 0.02 | 4.19 | 9.000% |
| Portugal Obrigacoes do Tesouro OT | 07/17/06 | 10/15/2016 | 5.00 | 0.21 | 4.60 | 4.200% |
| Portugal Obrigacoes do Tesouro OT | 05/03/07 | 10/16/2017 | 6.08 | 0.26 | 5.60 | 4.350% |
| Portugal Obrigacoes do Tesouro OT | 03/04/08 | 6/15/2018 | 6.27 | 0.28 | 6.26 | 4.450% |
| Refer-Rede Ferroviaria Nacional SA | 02/18/09 | 2/18/2019 | 0.50 | 0.03 | 6.94 | 5.875% |
| Portugal Obrigacoes do Tesouro OT | 03/03/09 | 6/14/2019 | 6.86 | 0.33 | 7.26 | 4.750% |
| CP - Comboios de Portugal EPE | 10/16/09 | 10/16/2019 | 0.50 | 0.02 | 7.60 | 4.170% |
| Portugal Government AID Bond | 03/08/90 | 2/25/2020 | 0.01 | 0.00 | 7.96 | 1.520% |
| Portugal Obrigacoes do Tesouro OT | 02/17/10 | 6/15/2020 | 5.26 | 0.25 | 8.26 | 4.800% |
| Parpublica - Participacoes Publicas SGPS | 09/22/05 | 9/22/2020 | 0.50 | 0.02 | 8.54 | 3.567% |
| Parpublica - Participacoes Publicas SGPS | 12/28/05 | 12/28/2020 | 0.15 | 0.00 | 8.80 | 2.423% |
| Portugal Obrigacoes do Tesouro OT | 02/23/05 | 4/15/2021 | 7.08 | 0.27 | 9.10 | 3.850% |
| Refer-Rede Ferroviaria Nacional SA | 12/13/06 | 12/13/2021 | 0.50 | 0.02 | 9.76 | 4.250% |
| Portugal Obrigacoes do Tesouro OT | 06/10/08 | 10/25/2023 | 6.53 | 0.32 | 11.63 | 4.950% |
| Refer-Rede Ferroviaria Nacional SA | 10/16/09 | 10/16/2024 | 0.50 | 0.02 | 12.60 | 4.675% |
| Refer-Rede Ferroviaria Nacional SA | 11/16/06 | 11/16/2026 | 0.60 | 0.02 | 14.69 | 4.047% |
| Parpublica - Participacoes Publicas SGPS | 11/16/06 | 11/16/2026 | 0.25 | 0.01 | 14.69 | 4.200% |
| CP - Comboios de Portugal EPE | 03/05/10 | 2/5/2030 | 0.20 | 0.01 | 17.91 | 5.700% |
| Portugal Obrigacoes do Tesouro OT | 03/22/06 | 4/15/2037 | 6.97 | 0.29 | 25.11 | 4.100% |
| Governo Portugues Consolidado | 01/01/40 | 1/29/2049 | 0.00 | 0.00 | 36.91 | 3.987% |
| Governo Portugues Consolidado | 02/01/42 | 2/28/2049 | 0.01 | 0.00 | 36.99 | 2.997% |
| Governo Portugues Consolidado | 03/15/43 | 3/29/2049 | 0.00 | 0.00 | 37.07 | 2.764% |
| Governo Portugues Consolidado | 12/01/41 | 12/29/2049 | 0.00 | 0.00 | 37.82 | 3.520% |