After the continuing saga of ‘Vultures’ vs. Argentina, we may witness a similar episode in Greece, where hedge funds are gearing up to tough out the government’s bond buyback program. The resistance has led to Greece offering a higher than expected price, due to the buying frenzy generated by hedge funds. The prospects for the holdout creditors are better than they were for those in Argentina, as the international community is bent on making every effort to keep Greece in the eurozone, which makes the chances of payouts brighter.

The total stake of hedge funds in Greek bonds is estimated to be around 25 billion euros. Those who are planning to say no to the buyback also gain hope from the previous incident in Feb 2012, when Greece vowed that it would not pay those who holdout and later paid in full in May. Another reason of confidence in the holding out strategy is the recent milestone ruling from Judge Griesa in a Manhattan court that ordered Argentina to put $1.33 billion in an account to pay off the creditors, including Elliott Management. However, later Argentina was allowed extra time by the appeals court to gather a strategy. Nevertheless, such rulings are rare and in cases where they are implemented, the defaulting country is protected by sovereign immunity laws.

While talking to Reuters, Greylock Capital’s CIO said they are planning to keep their overall position in Greek bonds constant by buying  short dated bonds later and selling long dated ones in the buyback. The fund thinks that this a great opportunity, probably the best with respect to risk vs reward in Europe.

The CEO of Adelante Asset Management also said that the risk for a loss in the future is minimum, which makes it probable that they will not participate in selling their positions.

Famous investor, Dan Loeb of Third Point also holds a large stake in Greek government bonds and the position has contributed huge gains over the past few months. According to the latest letter, the position was the top winner in November, and Third Point Offshore has gained 17 percent YTD.  Although we do not know what his future strategy will be, being a value investor, chances are that he will side with the holdout creditors.

Among those who will participate in the dutch auction of bonds are Greek and EU central banks, and the auction is expected to raise 20 billion euros, at least, Nomura’s Dimitris Drakopoulos told Reuters. After the buyback, the major chunk of bonds will be held by the government sector, which renders better chances of appreciation for the small portion of debt that is leftover and is held by those who choose to holdout.