Greek Debt Buyback Participation Still Short Of Target After Deadline

The tension over the Greek buyback, which was supposed to be completed on Friday with satisfactory terms, i.e., holders of more than EUR30 billion of new bonds tendering (at prices between 30 and 40 cents on the euro), is rising following a report from Kathimerini that roughly EUR25-26 billion has been accounted for, short of the formal target needed to hit the deleveraging goal. Confirming that the biggest beneficiary from the buyback are foreign (mostly US-based) hedge funds, while the biggest loser are Greek banks, is the participation rate which has seen a majority of the tenders, EUR16 billion, come from hedge funds happy with a 100-200% return in a few months as explained previously. For the banks the pain of writing down debt by two thirds once more after doing the same in March is far greater and explains why only EUR10 billion (of a total of EUR15 billion held by the sector) have been tendered into the buyback, by official Greek financial institutions who are also fearing retribution from shareholders despite official promises by the Greek FinMin they would be shielded from the fury of the people. That said, insolvent Greek banks have no choice if they wish to receive the billions in Troika funds used to replenish their underwater capital base and like it or not have to agree to the debt deal.

So with the target still shy by EUR4-5 billion, Greece is doing all it can to spin the deal as overwhelmingly successful, even though it knows full well it still doesn't have the numbers, to get even greater participation and avoid the perception that holdouts have any leverage from a Nash equilibrium standpoint, and can demand even better terms by not tendering bonds. As such Kathimerini adds that the offer books will likely be reopened on Monday, contrary to what had been said previously, so that the transaction can be completed by the "drop dead" deadline of December 13 when the much delayed bailout tranche finally has to be wired.

Some more from the WSJ:

Greece was close to achieving its target in a multibillion-euro debt-buyback plan demanded by the country's official creditors as a precondition for unlocking fresh aid to the country, officials familiar with the plan said Saturday.


Greece's debt-management agency—tasked with conducting the buyback—finished Saturday tallying up the results of bids made by investors interested in taking part in the deal. According to the officials, the total bid from both domestic and foreign holders of Greek bonds was close to a targeted €30 billion ($38.78 billion). When a formal announcement would be made was unclear.


"The results are between satisfactory and good," said a senior government official. "We haven't hit [the target] yet, but it will happen."


Greece ended the offer period for its debt-buyback program Friday evening, roughly two weeks after euro-zone finance ministers agreed in Brussels on a complex series of measures to reduce Greece's debt burden further. The most significant of those measures was a plan under which Greece would use as much as €10 billion to buy back outstanding bonds at around a third of their face value, thereby shaving €20 billion off the debt.


Euro-zone ministers and the International Monetary Fund have made that buyback program a precondition for unlocking a next tranche of badly needed aid to Greece. And the buyback must be completed by Wednesday, the day before euro-zone finance ministers are set to decide whether to greenlight the next tranche of aid.


Greece's Public Debt Management Agency gave bondholders until 5 p.m. London time Friday to make offers of how many bonds they would sell and at what price. A final decision on how many bonds the government will actually buy, at what price, and how much the Greek banks will hand over, might not come for several days, according to people familiar with the deal.

Of course, the question of how "voluntary" tenders of EUR26 billion out of a total outstanding GGB2 pari passu bond notional of over EUR60 billion can be claimed to be representative of a full voluntary full class endorsement, remains open. But anything as long as it is "voluntary" for anyone but the hedge funds who bought said debt at realistic prices in the teens.

To summarize, Europe continues to do everything down to the wire, with every decision being a push, usually involving a phone call from very high sources to get holdouts on the side of the needed consensus to keep everything from unwinding. And while the buyback may pass, in the 11th hour and 59th minute, one day a marginal decision-maker in Europe or elsewhere, may get the impression that defecting from the fold just may be the best game theoretical option, and send it all crashing down. Just when and where this event will take place of course remains a mystery.