The government of Greece, as disclosed in a long-winded document posted on the website Greekbonds.gr, asked the bondholders to accept a securities swap (“swap”) which would lead to a loss equal to approximately 75% of the invested capital. Greece must restructure its debt to bring its debt-to-GDP ratio trajectory onto a sustainable path and secure its second €130 billion bailout package, thus avoiding default and a likely subsequent disorderly exit from the euro. In order for the exchange to have effect on the economic figures, the percentage of adhesions must be at least equal to 90%.
And if not? Exit from the Euro? Back to the Drachma? It depends, not necessarily… if the percentage of adhesions were to be between 70% and 90%, Athens would have the possibility of making the remaining bondholders adhere in another way. If, on the other hand, the percentage were too low (below 2/3) the proposal would be abandoned and we would go towards a disorderly default, with all the associated costs.
Advise Only, the online financial advisory site founded by Claudio Costamagna, we tried to conjecture the possible scenarios in a video from a few days ago. What should you do if you are an investor caught in the "Greek net"? First a certain loss (equal to 75% of the investment) is perhaps a better alternative to spending years with an illiquid and probably unsellable security in the portfolio.
According to the Greek authorities, those who bet not to join hoping to recover 100 at maturity do not have much chance of success. The Debt Agency has, in fact, ominously stated that: “Greece does not contemplate the possibility of making resources available for private creditors who will not join the PSI”, the agreement with private creditors (private sector initiative) and that "given the proposed changes to the Greek law for the issue of government bonds, Athens intends to declare the changes effective and binding for all bondholders".
How to say: forget the 100 when it expires, you too will have 75, if it goes well. Yes, because there is also the case in which Athens opts for a discriminatory treatment of creditors who do not accept the exchange offer and do not authorize the modifications: they would become subordinated creditors and, therefore, would be reimbursed zero at maturity. If we were to fall back into disorderly default, creditors would still get zero at maturity, or a very small amount to leave under the Christmas tree for our great-grandchildren. Zero drachmas, of course…
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