Last year it was bank posturing, coupled with Germany and the rest of the Eurocore countries, when it comes to Greece. Now it is the hedge funds. Bloomberg has reported that the Greek private creditors have "reached a deal" with Greece on existing debt which "would give creditors 32 cents per euro", or a 32% recovery according to Marathon Asset Mgmt CEO Bruce Richards, who until recently was a bondholder, but recently has been rumored to have dumped his holdings, which makes one wonder why or how he is talking for the creditor committee. Of course, with Greece now a purely bankruptcy play, we expect various ad hoc splinter "committees" to emerge, coupled with an equity committee as well (yes yes, we jest). Bloomberg reports also that Richards is "highly confident" a deal will get done. Nonetheless, the Marathon CEO expects Greece won’t make the €14.5 billion ($18.5billion) bond repayment scheduled for March 20. However, he does see a deal with creditors to be in place before then. For now the Greek government has declined to comment. We fully expect the IIF's Dalara to hit the airwaves shortly and to make it all too clear that the implied 68% haircut is sheer lunacy. Naturally, should this deal come to happen, we can't possibly see how Portugal, Spain or Italy would then sabotage their economies just so they too can enjoy 68% NPV haircuts on their bonds. Finally, even if Marathon likes the deal, all it takes is for one hedge fund hold out to necessitate the application of Collective Action Clauses which would blow the deal apart, create a two-tiered market, and effectively create the perception that the deal was coercive.
More from Bloomberg:
There are still obstacles to concluding what negotiators term a “consensual restructuring.” Official lenders may object if they conclude that the deal would be too expensive for Greece, which would force the country to go back for more official support in the future.
“I can only tell you the negotiations are continuing,” said Frank Vogl, an IIF spokesman. “I can’t tell you whether they’ll be successful.” The IIF, a global association of financial institutions, is led by Deutsche Bank AG (DBK) CEO Josef Ackermann.
An agreement reached Oct. 26 called for private holders of just more than 200 billion euros worth of Greek government bonds to accept new bonds with a face value of half that amount, or about 100 billion euros. As part of the deal, euro-zone members agreed to kick in 30 billion euros in unspecified support. That could take the form of buying bonds from the private holders at 100 cents on the euro in cash, leaving them with new bonds with a face value of 70 billion euros.
Negotiations since then have centered on the interest rate new bonds will pay, with Germany among those insisting on a low rate and the private creditors demanding a higher one.
The new bonds will probably pay annual interest of 4 percent to 5 percent and have a maturity of 20 years to 30 years, Richards said. They may trade for about half of their face value, he predicted. Altogether, the net present value of the deal for the bondholders will be about 32 cents on the euro, he estimated.
It’s not yet clear whether the deal will cover all outstanding Greek bonds or just those maturing by the end of 2020, Richards said. He also said that the deal probably won’t contain a sweetener to reward creditors in case of a strong improvement in the health of the Greek economy in coming years.
The tentative deal may win support from investors holding 70 percent to 80 percent of the privately held Greek bonds, he estimated. He favors the deal, suggesting investors who refuse may get back less.
“There’s a very, very high probability that this goes through,” he said. “It’s the best deal creditors can get.”
Well as long as Marathon is talking for all the possible hold outs...
Finally, assuming this deal does go through, we can't wait for Greek people (and thus US taxpayers who are ultimately funding all of this) to understand they are giving hedge funds an immediate 28% return (bonds trading at 25 cents, recovery is 32) which they themselves are funding. On the other hand 7 cents nuisance value on $200 billion is $14 billion. As a reminder, on January 10th we said "We estimate the final tally, to US taxpayer mind you, will be about $20 billion, to remove the "nuisance factor" of hold out hedge funds." In other words, we were almost spot on where we said Europe (and thus America) would "tip" hedge funds to just go away.