Hedge funds are positioning to profit from a plan to slash Greece's towering debt pile as Athens enters final talks that could sway the country's membership of the euro.
York Capital, the $14 billion fund part-owned by Swiss banking giant Credit Suisse
The deal asks creditors to voluntarily write down 50 percent of the notional value of their bond holdings. But hedge funds may opt out, hoping that Athens will let them get away with it to save itself political embarassment.
I think we'll hold out. People are so slow in Europe and by the time they've got everything in place logistically this might be the one window where investors might be paid back in full, said one hedge fund manager who owns Greek bonds.
The stakes for Greece are high. Without the deal, the international lenders will not bail Athens out a second time, which means it will likely default around March 20, when a 14.5 billion euro bond falls due.
But hoping that Greece will pay out after all looks increasingly like a dangerous strategy. According to three senior euro zone sources on Thursday, the country is likely to force all creditors into the deal.
Unless these guys are all teaming up and getting a really good law firm, I still think it's going to be touch and go, said one of the sources close to the talks.
I think politically it would look bad for the Greeks and the Europeans to let (a payout to hedge funds) happen... This is the exact thing the official sector hates.
Funds that have bought credit insurance on the bonds they own could gain by staying away however, if the changing of Greek bond contracts would be seen to amount to a default and trigger Credit Default Swaps (CDS).
BETS ON BAILOUT?
Reuters spoke to thirteen sources including hedge funds, advisors and sources familiar with current Greek debt trading, but they declined to reveal details of their strategy in the Greek debt restructuring.
New York-based York Capital Management, part-owned by Swiss banking giant Credit Suisse, is among the funds to have bought Greek debt, two of the sources said.
One source familiar with the firm said it owned a chunk of a Greek bond maturing in March, and was betting there would be a last minute bailout for the country.
Och-Ziff Capital Management, the $28 billion fund founded in 1994 by Daniel S. Och, also has a position in Greek bonds, three sources said. Och Ziff and York declined to comment.
Many funds have followed a more traditional strategy of buying the Greek bonds at distressed prices from banks keen to get the toxic paper off their books.
This means that these funds might sign up to the deal, if the terms on offer are better than the price they paid for their bonds. Others might hold out, hoping enough creditors will do the same and enabling them to exact a better payout from Greece.
Some 206 billion euros of Greek debt is in private hands, but it is unclear how much of that is owned by hedge funds.
Up to 25 percent of private creditors have not been identified, according to one source close to the talks.
DECADES OF EXPERIENCE
Other firms with an interest include Madrid-based Vega Asset Management, which resigned from the committee representing private creditors in talks over the bailout last year.
Founded in 1996 by former Banco Santander star trader Ravinder Mehra, Vega was once among Europe's largest hedge funds, managing close to $12 billion before suffering outflows. Vega declined to comment.
Two New York-based funds with decades of experience profiting from buying distressed debt are also involved.
One is Marathon Asset Management, a member of a private sector creditor-investor committee negotiating with Greece. A $10 billion credit focused fund run by Bruce Richards, it has an emerging markets credit team which specialises in distressed corporate and sovereign debt.
The other is Greylock Asset Management. It is headed by Hans Humes, who represented some $40 billion of creditor holdings during Argentina's record-breaking restructuring, and now sits on the steering committee.
Funds who have bought Greek debt in the last few months are likely to have paid anywhere between 20 and 45 cents on the euro, depending on the maturity.
By signing up to the deal, which is for a 50 percent haircut, they would still make a profit.
(Additional reporting by Laurence Fletcher and Sarah White, Editing by Douwe Miedema and Sophie Walker)