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Thursday, March 08, 2012 7:11 PM

"Success" at Gunpoint

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I am rather amused by the absurd headline on Financial Times this evening: "Greek debt swap support close to 95%"

The largest debt restructuring in history was heading for a successful outcome last night as Greece looked set to see a participation rate of close to 95 per cent for its €206bn bond exchange.

One person involved in the deal said that more than 90 per cent and possibly more than 95 per cent of investors had taken part, assuming collective action clauses (CACs) were used to bind dissenting holders of some bonds.

The high participation rate is only possible through the use of CACs, which will make the offer binding on all holders of Greek-law bonds. That in turn will almost certainly trigger pay-outs under credit default swap insurance.

“This extraordinarily difficult deal … allows Europe to avoid what could have been an enormously costly, disorderly default,” Charles Dallara, chief negotiator for Greek bondholders, said on Thursday during a visit to Brazil.
Difficult Deal

Yes indeed, the deal was so difficult that the Greek parliament chose to enforce it on holdouts by gunpoint, more specifically retroactive collective action clauses (CACs).

Here is yet another measure of "success"
Financial markets are already betting Greece will default again in the future. Grey market pricing for the new Greek bonds to be issued as part of the exchange ranged from 17 to 28 cents on the euro, a highly distressed level, according to indicative quotes seen by the FT.

The pricing equates to a yield on the new bonds of 17 to 21 per cent about where Greek yields stood in the autumn and far worse than the yield on debt issued by Portugal, which has also received a bailout.
The definition of  "success" at 17 cents on the dollar for new bonds (and even then only achievable at gunpoint) is so preposterous I hardly know what to say.

Mike "Mish" Shedlock
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