This piece lifts information from the German paper Frankfurter Allgemeine Zeitung – there is hardly any more reliable newspaper. Any humorous slant is strictly mine – as one thing the FAZ is not: Funny.
The Greek parliament has today passed the act to reduce the debt owed to private creditors.
The law foresees a forced haircut for the investors, if they don’t “consent voluntarily”. The haircut will be 53.5%:
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a) IF at least half the creditors have responded to the government’s decision.
b) AND 2/3 of this half has accepted the offer.
c) If the sum of “voluntary“ write-offs by the creditors is less than 107 bio. Euros then:
i. The part of the bonds under Greek law (93%) will be forced to accept the terms by an act of the Greek parliament.
ii. The rest under English law is already covered by such measures.
The problem has all the time been the relatively small number of bonds under English law, where there is a blocking minority protection of between 1/3 and ¼.
What moved the creditors to waive?
It now seems like there has been found an understanding with the creditors under English law, so at least 2/3 approval has been secured. The question is how some creditors have been “persuaded” not to respond?
One can only guess what unpleasant measures the hedge funds that have tried to build up a blocking minority in the English law bond have been confronted with. But they must have been substantial and very nasty.
It seems likely that this stone on the road was the real reason for Cameron’s exit from the last EU meeting concerning the Greek problem. It will probably never be fully public, but it is likely it would have meant some Euro-zone measures against the British banks – and hedge funds.
But that is pure speculation what arm twisting that has been used.
Maybe it has something to do with Cameron’s speech today about him being “sick and tired of anti-business snobbery”. This pro-business stance might be noticed when the big bonuses for The Royal Bank of Scotland has come into focus.
I’m here dastardly implying that Mr. Cameron just might have mentioned such a popular pressure to the management of the troublesome hedge funds. Just a perfidious remark.
What will the investors get in return for their good will gesture?
They will get 93 bio Euros in:
- 30 bio. Euros in short term EFSF papers.
- 63 bio. Euros in new Greek sovereign bonds of 30 years maturity and an average of 3.65% coupon.
There is the rub – in no. 2: That will call for further violent impairments to the investors, as 3.65% is considerable less than the current rate. Thus the Greeks are saying: We will pay – eventually.
The haircut is thus considerably more than the 107 bio. Euros.
The 30 bio. Euros short term bond is sort of a safe guard to persuade the Greeks to behave. When they reach maturity they will have to be refinanced – but on what terms?