Καροτα, Μαστιγια κα ι PSI, Πιθανα Σεναρια ( zerohedge )

On Greek PSI – Headlines And Reality

By ZeroHedge

The Greek PSI is once again (still) hitting the headlines.

Here is what I think the most likely scenario is (80% likelihood).

Some form of an agreement will be announced. The IIF will announce that the “creditor committee has agreed in principle to a plan.” That plan

will need to be “formalized” and final agreement from the individual institutions on the committee and those that weren’t part of the committee will need to be obtained. The headline will sound good, but will leave a month or so for details to come out. In the meantime every European and EU leader (or employee) with a press contact will say what a great deal it is. That it confirms that Europe is on the path of progress and that they are doing what they committed to at their summits.

That will be the hype that will drive the market higher. They will do it because they have to. They cannot afford an uncontrolled default, so they will have to push forward as though they have fixed something.

The reality of the situation is that the big European banks on the IIF committee will have agreed to the plan. They will confirm it. Other European banks will also agree. They will be told that they will not have such easy access to the ECB or other programs if they don’t agree. In the end, European banks will get fully on board. That is the easy part. What about hedge funds?

I believe hedge funds have 3 trades in Greece right now. The “how much lower can it go”, the“basis package”, and the “let’s play chicken” trades.

How much lower can it go?

These funds bought longer dated bonds, often at a price of 40% of par or lower. If they dealthey get is profitable they may agree. Maybe some side deals will be created. Maybe a bank (on behalf of the EU or ECB) will pay 50% or something for these bonds. It won’t be an economic trade for the bank/EU/ECB, but they are all about taking default off the table. Once upon a time “Greenmail” was a strategy, so why not now. How much would it cost to give the funds enough of a profit that they sell or to cut some side deal where they get a bit extra? Remember, these are the same people who are talking about a retroactive Collective Action clause, so don’t put anything past them. That would clear up this source of bonds.

The basis package?

Funds that own bonds and CDS will be the most stubborn, so take them out of the package at 104 or something. That is more than they could hope to make from it, and monetizes it today rather than at some point in the future. A form of “greenmail” but if default scares you so much, do this.

The “Chicken” Trade?

Some funds bought very short dated bonds, March and May of this year, with the hope that the TROIKA would just pay them par whether or not a full PSI had been reached. These are trickier because the amount of potential profit is very high if they are paid at par, but the consequences of “defaulting