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"Voluntary early rollover" means I hold a Greek bond and the Greek government sells me a new bond, the proceeds of which they use to buy the old bond.

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 Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:20:21 AM EST
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