Archive for the ‘Eurozone Default’ Category

“If enough bondholders do not accept the bond swap offer, Greece would be deemed to be in outright payment default”

~ Standard & Poor’s Rating Agency

Anyone out there shocked to find that no Greek bailout has taken place yet?  Anyone flabbergasted that zero dollars have flowed into Greek coffers?  Well, if you are, you haven’t done your homework.  After all, several sources, including our friends at ZeroHedge and The Slog, as well as this very site, have stated in recent weeks that no “deal” is done until money flows from the ECB to Greece.  Thus far, nothing of the sort has taken place.  And while several people were laughing at us last week when the European leadership notified the world that a deal had been agreed to, and yesterday when the Bundestag agreed to send German tax dollars to Greece, this morning we wake up to read that Greece is on the verge of default as noted by the Standard & Poor’s rating agency, one of the three organizations who are paid by the issuers of bonds to rate a debtor’s creditworthiness.  In other words, people paid by Greece to rate Greece’s credit say they are incredibly close to defaulting on their debt.  Enjoy this statement, as reported by Tyler at ZeroHedge this morning:

Greece Ratings Lowered To ‘SD’ (Selective Default)

Rating Action

On Feb. 27, 2012, Standard & Poor’s Ratings Services lowered its ‘CC’  long-term and ‘C’ short-term sovereign credit ratings on the Hellenic Republic  (Greece) to ‘SD’ (selective default).

Our recovery rating of ‘4’ on Greece’s foreign-currency issue ratings is  unchanged. Our country transfer and convertibility (T&C) assessment for  Greece, as for all other eurozone members, remains ‘AAA’.

Rationale

We lowered our sovereign credit ratings on Greece to ‘SD’ following the Greek government’s retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors has agreed to do so. In our opinion, Greece’s retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring. Under our criteria, either condition is grounds for us to lower our sovereign credit rating on Greece to ‘SD’ and our ratings on the affected debt issues to ‘D’.

What does all this jargon mean?  Simple.  Because Greece has retroactively and unilaterally created new conditions for when and how they will pay back their creditors to their own advantage, making it easier for Greece to force a larger “haircut” onto its lenders, (ZeroHedge and others have done a good job of covering this, and perhaps we can revisit this topic in another post) S&P is stating that it is within its right by its own definition to find Greece is in a state of default.  After all, what is a default but a failure to repay a loan based on the original conditions of said loan?  In essence, S&P is stating that Greece is already in default.  The term “selective” seems to be applied here to indicate that the default is of Greece’s own making, which may be used as a way to avoid triggering Credit Default Swaps.  This is absolutely another conversation for another time.

Let it suffice to say today that we are in uncharted territory here.  The Slog has treated this topic today with the article “When Will Enough Be Enough for the Credit Agencies?” and ZeroHedge has their article here.  As it turns out, March 23 is closer now than it was last time we covered Greece, no money has made its way to the Bailout Fund, and with news like this being circulated in the U.S., what are the odds that Europeans (read Germans) are going to want to chase a nation already in technical default with their own taxes?

He who laughs last laughs best, but will any of us be laughing when Greece goes under?  Three more weeks until we find out…

~ DS

As American Endgame discussed yesterday, several sources around the world, from The Slog’s secret, highly-placed sources to The London Telegraph discussed the very real possibility that–despite ALL PUBLIC COMMENTS TO THE CONTRARY–the Eurozone, led by Germany and Chancellor Angela Merkel, are preparing to allow Greece to default on its debts and be shepherded out of the common currency.  The argument goes that chasing good money after bad–when Greece will still be above the all-important 120% Debt-to-GDP Ratio in 2020 and when it appears by all measures that Greece will simply default in 2 years anyway–is not in the Eurozone’s best inerests.  Fair enough…

So, what are we to make of the “pending bailout deal,” an agreement that is allegedly going to hand Greece the $170 billion it needs to stay afloat after March 20?  Is the AE story from yesterday a clear example of alternate journalism gone wrong?  Not necessarily…  This from ZeroHedge today:

“According to a just released update on the website of the European Council, the much anticipated press conference “to end all press conferences” will take place at 23:00 CET, or 5 pm Eastern. What will then likely happen is another delay until midnight, then later, then finally when Europe is sleeping a few finance ministers will say that the Deal is virtually done, the terms of the PSI are agreed upon (except that “some” creditors, those who have a blocking stake, will vote no and force the use of CACs and thus trigger a default before March 20) with the exception of a few minor outstanding items, such as whose debt is cut to bring total Debt/GDP to 120% by 2020, which they hope to get resolved shortly. And so this latest and greatest meeting will come and go, and anyone who shorted the Belgian caterers will be broke when the market opens up tomorrow, when Belgian catering ETFs all go limit up.”

And this from The Slog itself:

“[F]rom what I’ve seen or been told about the additional savings package being imposed on Greece (and they’re still arguing about it as I write) it contains a large number of potential deal-breakers before the 130 billion is actually handed over. My hunch is that Schäuble will use these to derail the process and keep his own plan on track. If a deal is announced today, then the MSM will of course all shout “Crisis Over!” in one Stepford tone. They will be wrong: default will only be avoided when the bailout cash goes into the Athens government’s bank account. Even  with an agreement today, this is not a done deal: riots alone over the next few weeks could blow it off course.”

In other words, as another famous Greek once quipped, don’t count your chickens before they’re hatched.  Until the Euros are in Greek coffers, this whole issue may still drag out until the March 20 hard default deadline, or the alleged March 23 planned default.  And in the meantime, until this press conference goes off, hold off on assuming Greece is back on track.  It seems we may have a way to go…

~DS