The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
Whether or not this involves a loss for me or is done "at par", I fail to comprehend how this could constitute a "credit event" in the eyes of anyone.
Now, if people perceive the I bought the new bond under duress, maybe they'll call it a default, but they don't have a legal leg to stand on.
This can also be done as a bond swap. I swap my existing bond for a newly issue bond, and I agree with Greece that the bond is worth the same as the old one. Mark-to-market and hold-to-maturity accounting issues galore, as you can imagine. Credit rating agencies have said they would interpret most bond swaps as a credit event. But if you structured it as two bond purchases as above, it wouldn't be.
A "maturity extension" can be seen as a bond swap. I exchange a bond maturing in 5 years for a bond maturing in 10 years. For the same book value, the 10-year bond would have smaller periodic payments, improving Greece's ability to pay. Longer maturities have higher sensitivities to interest rates higher downside risk, and might lose market value quickly. If the maturity extension is at a loss, it would be a credit event if "involuntary", yatta yatta bing bing.
These are all examples of "debt restructurings".
A "default" is a failure to meet obligations as they mature. Evidently, if restructurings are "voluntary" there's no "default".
This has nothing to do with mathematical finance and everything to do with law and politics, evidently, though faulty accounting principles help obfuscate the issues. As does jargon.
"Bondholder bail-in" means forcing bondholders to realise losses on their bond portfolios. A "bond rollover" or "bond swap" or "maturity extension" or "debt restructuring" is a "bail-in" if it involves a loss for the bondholder.
Economics is politics by other means
by gmoke - Nov 19 5 comments
by Cyrille - Nov 23 6 comments
by ARGeezer - Nov 20
by gmoke - Oct 28 15 comments
by Luis de Sousa - Nov 1 6 comments
by ManfromMiddletown - Nov 6 16 comments
by Migeru - Nov 7 25 comments
by das monde - Nov 3 59 comments
by Cyrille - Nov 236 comments
by ARGeezer - Nov 20
by gmoke - Nov 195 comments
by Migeru - Nov 725 comments
by ManfromMiddletown - Nov 616 comments
by das monde - Nov 359 comments
by Luis de Sousa - Nov 16 comments
by afew - Oct 3164 comments
by Democrats Ramshield - Oct 312 comments
by gmoke - Oct 2815 comments