Loophole Could Complicate Greek Bond Swap and Bailout

Some hedge funds found a loophole that may enable them to receive the full amount promised them: no haircut.

Despite the relatively small sums involved, any extra payment or legal hurdle could complicate matters and delay the long awaited EU funds.

These news come just after Greece announced a participation rate of 85.8% in the PSI. Together with activating Collective Action Clauses (CACs), the rate will reach 95.7%.

A specific bond has a provision that means that Greece has actually defaulted on it just by asking for a restructuring.

The size of these particular bonds is only €400 million – a drop in a sea of Greek debt, but it could be extended  (source: eKathimerini)    to all the bonds of the issuer:  Hellenic Railways, amounting to 3 billion euros. The Greek government owns the company and guarantees the bonds.

While the sums are not big, it’s important to remember that paying some bondholders in full while having a haircut for others could trigger lawsuits.

In addition, it’s important to remember that the EU insisted with Greece on finding 325 million euros worth of spending cuts, before the February 20-21 meeting.

If Greece needs to allocate more money to pay these hedge funds in full, even if the sum is only 400 million euros, this could complicate matters, that are already very sensitive.

Time is running out. The deadline for the redemption of bonds is March 20th. Together with 7 days of grace, that’s March 27th. This issue should be sorted out in order to avert a mess. The weekend of March 23rd is a potential timing for a bank holiday.