March 20th – Bridge Loan? What’s The Cost?

I think that the EU is making this stuff up as they go along.  A report talks about a “bridge loan” for the March bond payments.  Scary, but that would add about 8 billion to the cost of the bailout.  These bonds were expected to be part of the PSI, so 50% of the principal would have been gone.  That is 7.2 billion additional cost to the bailout that has already gone from 130 to 145, and now would be 155 (rounding error). The rest of the additional cost comes from paying the interest, rather than PIKing it, and 2 of the bonds with interest due have higher coupons that the mythical PSI bonds.  There are also a couple of small “sinking” fund bonds due in march – looks like about 100 million.  Not much in the grand scheme of things, but more costs to be added to the package.  So it could be viewed as buying an option.  Will will pay you 16 billion, for the right to delay payments until after the April election.  Payments that wouldn’t have come before than anyways.  The bailout was always going to be in pieces.  They aren’t giving the money to Greece in one lump sum.

If this all seems confusing and amateurish, it is because it is!  I can only guess at the amount of money spent on all these summits, but they should have hired a proper distressed debt advisory firm from the start.  Yes, taxpayers would have screamed at the $50 million bill, but at least we might have a solution to the problem.  The leaders and finance ministers have made mistake after mistake, and it has led to this.  Default is inevitable, and no one has done any work on it.

I hope Greece is getting ready to sell some assets – POST default – because selling them now is just plain stupid.