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Mandatory Greek debt exchange is unlikely, says Creditsights
In a research note published today, Creditsights says that it believes a mandatory Greek debt restructuring is unlikely, at least before a “European solution” has been given chance to work. The independent research firm’s analysts argue that if there is a restructuring, a voluntary bond exchange is more likely. This would probably involve holders swapping bonds for new obligations with a longer maturity or lower coupon. A principal reduction is unlikely, they argue, since it would hit the many European banks that are investors in Greek debt.
Such a voluntary debt exchange would not, of course, trigger a credit event on credit default swaps. As an aside, the authors point out that sovereign credit default swaps written on western European sovereigns, a definition which includes Greece, can be triggered a by a restructuring of domestic debt. This is different than emerging market sovereign swaps, which include a “no domestic law” clause.
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CFlux secondary
CLO index levels:
| Index | 6 Feb |
|
| CFlux USD AAA | ↑ | 94.9 |
| CFlux USD AA | ↓ | 81.3 |
| CFlux USD A | ↓ | 75.0 |
| CFlux USD BBB | ↑ | 74.8 |
| CFlux USD BB | ↑ |
72.1 |
| CFlux USD EQ | ↑ | 67.6 |
That's a highly credible conversation (below). Let's hope that Herr Steuerzahler is also a voter with a memory.
There seems to be a growing consensus (see JP Morgan’s research covered yesterday) that a Greek bond restructuring will be consensual and will not trigger a credit event under CDS. We are not so sure. Our simplistic understanding of the current situation in Greece takes the form of a conversation between European politicians and European tax payers. Politician: Herr Steuerzahler, we need to use your money to bail out Greece. Taxpayer: Why? Politician: Well, our banks have lent Greece so much money that the country can no longer pay it back. Now it’s your turn to lend Greece some money, otherwise the banks will be badly hurt. Taxpayer: But I don’t care about the banks. Politician: But if banks go bust, you could lose money. Taxpayer: Don’t try to scare me. The banks have lots of money. I have seen all those bank notes they count behind those glass partitions. Politician: But, Herr Steuerzahler, if we don’t bail out Greece, the euro could fail. Taxpayer: I don’t even know what that means. Why don’t we just kick Greece out of the euro? Politician: You don’t understand, it’s not that simple. Taxpayer: I have an idea. We have already lent the IMF lots of money to lend to countries that get into trouble. Why don’t we get them to lend Greece the money. Politician: But the IMF will impose nasty conditions like forcing bondholders to accept a loss, and that will hurt European banks. Taxpayer: But I told you, I don’t care about the banks…