‘At least three levels of deal by bondholder type’ say sources

The Greek Government is said to have offered the most truculent bondholders a variable rate new-bond coupon deal, starting at around 3% and rising to 4.25%. The IIF is considering the proposal. Also coming to light however – and for obvious reasons this is a highly sensitive issue – is clear evidence that at least three and perhaps four levels of ‘haircut’ either have been or are being negotiated.

Shortly after 2.15 pm GMT today (Thursday) The Slog learned that a ‘low start’ 4.25% new Greek bond-issue coupon is “unofficially on the table” (whatever that means). The Athens Government would get a year of paying slightly over 3%, and then pay 4.25% for the remainder of the period. Equally unofficially, lead IIF negotiator Charles Dallara has taken this away for further consultation with his colleagues.

I understand that an earlier idea – that after the first year at 3%, the rate would rise dependent on the success of the Greek economy – has been rejected by a substantial majority of bondholders.

The situation is highly confused, with some sources saying that there will a result tonight, others that talks will continue tonight. I do however have it on very good authority that the ECB (by far the biggest creditor at $50bn) has accepted terms in principle, as have the major French banks…and that their conditions are considerably ‘worse’ (ie, less demanding) than those for the mainly Hedge Fund and US Bank operations still holding out. Once again, the taxpayer gets the bum deal. Just fancy that.

What has emerged is that late yesterday (Wednesday) Greek Prime Minister Lucas Papademos threatened to activate a ‘collective act clause’ and force private creditors to participation, during his 3-hour talks with Charles Dallara.  Later, the IIF responded by threatening to sue Athens for payment by March 12th. Adding its twopennorth, Brussels this morning opined that default forced by a lasuit would not trigger CDS insurance. Opinion is divided on that one: to be frank, I think Brussels would say anything right now in order to get a result. Two weeks running now Papademos has assured everyone that the garden was lovely, all the old blooms nipped and the grass cut. Clearly, he was lying his hellenic head off.

My original source from last week sticks to his judgement that this time a deal will be done – with a tentative closure of Friday midday. This also seems to be the Athens Government perception.

If you can remain awake, stay tuned. Personally, I think the Hungarian situation stands every chance of being both more interesting and far more consequential, but each to his own: we shall see.

Footnote: Reuters posted this three days ago: ‘A Greek exit from the euro zone would be worse than catastrophic and could provoke greater social unrest, Zimbabwe-style inflation and a military coup, said London-based hedge fund firm Toscafund.’

For a different view, you might find this bit of history interesting.