here's the Greek government's formal solicitation of private sector debt swap
They just released this a couple hours ago, which is late Friday evening in Greece. I guess the idea is to give investors some time to figure things out before trading opens Monday morning?
It’s a really dry document, but here are some highlights:
- Investors will be given three choices of bonds to swap their existing bonds for. All of them mean pretty heavy losses for investors. The safest one (backed by the eurozone’s new European Financial Stability Facility) means that investors take a hit of 85% on their investment value.
- If at least 90% of investors agree, then the deal goes through for sure (and presumably the Greek government forces the rest to participate). If at least 75% of the investors agree, then the Greek government has the option of making the deal go through. If less than 75% of investors participate, then that’s really suboptimal.
- If the Greek government needs to force the deal through, this will almost certainly trigger billions of dollars’ worth of credit default swaps, which are effectively insurance on default. It’s not clear if the banks backing those swaps (i.e. promising to pay out the default insurance) have those billions of dollars on hand.
If the banks backing the swaps don’t have the billions of dollars available, then that’s going to be a problem as they’re going to need to sell a lot of assets very quickly to pay out. This would likely trigger some issues in financial markets, but probably not to the point where governments would need to step in and bail out the banks who need to pay out.
Anyway, will be interesting to see how this goes. The Greek government is setting up a website to communicate more information about the process at greekbonds.gr, which seems like the sort of URL a banner ad might point to but it redirects to a very legit-looking government webpage.
