Dart 1: Greece 0; And Just Desserts For Lemming PSI Participants

Two months ago, to much fanfare, Greece and the IIF announced what a smashing success the forced cram down that was the Greek PSI (memories of GM and Chrysler should be flooding back here) was. The thinking went that Greece avoided bankruptcy, co-opted lemming creditors avoided pursuing what is rightfully theirs in exchange for a 75% haircut, hold out hedge funds would be blown out of the water for daring to not go with the herd of 96.6%, but most importantly, Europe was saved! Today, Europe is no longer saved, and all those hedge funds that folded like cheap lawn chairs in agreeing to Europe's extortion are getting annihilated, because as the chart below shows, the NEW Greek bonds have now seen their dollar price cut in half since the PSI. Which means that total looses on original Greek debt, for those who did agree to the PSI's arm-twisisting terms are now about 90%. Just desserts.

But what happened to those other few who followed our advice, bought UK-law bonds, and told the group to shove it? Here's what (from the NYT):

Vulture funds 1. Greece 0.


When Greece announced on Tuesday that it had made a €436 million bond payment to the hold-out investors who rejected the country's historic debt revamping deal in March, the decision came as no surprise. After all, with the Athens government in disarray and investors wary of having anything to do with Greece, now would be a bad time to make things worse by defaulting on a bond payment.


What’s news is where most of that money went. Almost 90 percent was delivered to the coffers of Dart Management, a secretive investment fund based in the Cayman Islands, according to people with direct knowledge of the transaction.


Dart is one of the best known of the so-called vulture funds, which have a track record of buying the distressed bonds of nearly bankrupt countries — and if they do not get paid, suing the governments for the money. Dart and another big vulture fund, Elliott Associates, perfected that strategy during the various Latin American debt crises in years past.


By accumulating the bulk of these bonds at prices that traders estimate to be from 60 to 70 cents on the dollar, Dart stands to make a hefty profit, having received 100 cents on the dollar — an outcome likely to be especially galling to the Greek banks and other local institutions that were forced to take a 75 percent loss on their Greek bond holdings.


“They caught us at the weakest possible time,” said Gikas Hardouvelis, a senior economic adviser to Prime Minister Lucas Papademos who was involved in the decision making process. “But it does not prejudice future judgments on this matter.”


Dart’s payday may well offer encouragement to other holdouts among investors now in possession of about €6 billion, or $7.6 billion, in Greek bonds. Another payment is due in September, although for a lesser amount.


The big winning bet by Dart could presage a more aggressive tack by vulture funds, if Greece is forced to restructure its bonds a second time.

No. Not Greece. Portugal. And Ireland. And Spain. And Italy.

In other words: buy PIIGS UK-law bonds. Sell all other bonds. Just as we suggested on January 22.