March 20th Bonds And The Latest Greek Headlines

There is now talk about delaying implementation of the bailout until after the April elections.  That at least makes some sense.  See if the people support the austerity with an election.  It also makes sense because it deflects the market’s attention for a little while so that everyone can prepare for an “orderly” default.  As Mike Tyson said, everyone has a plan until they get punched in the face.

These March bonds get more interesting by the day.

As currently scheduled, Greece would have to make payments of almost €16 billion.

The 4.3% bonds of March 2012 would require about €620 million in interest and €14.435 billion in principal.

The 4.7% bonds of March 2024 has an interest payment due for about €490 million.

The 5.3% bonds of March 2026 are owed about €370 million in interest on that day.

So we still haven’t heard that an actual PSI plan has been sent to bondholders for approval, but hearing it could be any day (though Friday keeps coming up as the target).  I am hearing that bondholders would have 3 weeks to respond, so March 9th would be when PSI results are known.

So far, I have not heard of plans to implement a retroactive collective action clause.  If they are waiting until after the votes, I think they are crazy.  They would have 11 days to implement the collective action clause and defend it against inevitable lawsuits prior to the March 20th due date.

Without knowing the details of the PSI deal (how much is paid for by EFSF, etc.) it is hard to determine the participation rate.

Does knowing that the attempts at a “bailout” could end after the election, does that increase the participation rate?  Will fear of default encourage participation, or at 22% of par, will bondholders take their chances?  I’m not sure what it does for the average bond holder, but for the March 20th bonds, I don’t see why you would agree to PSI.

If you agree to PSI on the March bonds, you will be losing money on a mark to market basis.  The bonds are currently around 40, and most estimates place the value of the PSI package around 30.  So you would rather sell bonds today than agree to PSI.  So long as the March bonds remain well above 30 you can bet that there are holdouts.

Europe is painting themselves into a corner (again).  If they say they are going to wait for the Greek elections to figure out the long-term program, how can they not pay the March bonds?  If they pay the March bonds and Greek elections go poorly, how do they explain to their citizens that they just threw away more money (especially as France will be going through its own elections).

Default is likely, but I think the risk/reward of March 20th bonds is skewed towards saying no to PSI.  High likelihood of default and probably losing 10 to 20 points, but a real probability of getting paid par and being the last Greek bonds to receive money.

I really believe that the EU is confused, doesn’t have an actual strategy, and is doing the work piecemeal so that one group decides that waiting until after the elections is a good idea, without a thought about what it does for the March payment and for the PSI.