Greek Debt Crisis

Greek bond investors take big ‘haircut’ in bailout deal

Kai Ryssdal Feb 21, 2012

Kai Ryssdal: We’ve been here before, thinking the Greek debt crisis was well and truly over. But it does seem that this time Athens and its lenders really mean it. Pretty much everybody that Greece owes money to — other countries, the International Monetary Fund, the European Union — are going to take a loss on what they’re owed. Haircut is the vernacular. Private bondholders, by mutual agreement, will get back just 26 cents for every dollar they’re owed.

Hans Humes is one of those private creditors. He’s the president of Greylock Capital Management, it’s a hedge fund. Good to have you with us.

Hans Humes: Good to be here, thanks.

Ryssdal: So what do you think — a 74 percent haircut: fair, not fair?

Humes: You know, I’ve been doing sovereign restructuring for 20-something years, and one of the things you learn is if you go in there with the thought of what’s fair and what’s not fair, it’s going to be tough to get things done. This is a situation where there was far too much debt for the Greek economy to support. I think within the context, we ended up getting a deal that is workable.

Ryssdal: There was a great quote in one of the many articles about this story today, some guy saying — some investor in Greek bonds saying — ‘This deal is the farthest thing from voluntary you can imagine.’ Did you have a choice? Did you have to go along with this or could you have said, ‘no I’m not doing this’?

Humes: I think we had a choice. So I mean, it’s difficult to say ‘voluntary, involuntary’ — I don’t think anybody wants to walk away from as much debt as we have, but the alternative is just a total default by Greece, and I think that that might actually end up being worse for everybody.

Ryssdal: Is a total default by Greece — a choatic default by that country — is that off the table now, at least for the next three years, the terms of this agreement?

Humes: I think it’s off the table. I think the chaotic nature of it was underestimated by some of the people who were involved in the negotiations, on behalf of a few of the European countries. On the private sector side, it’s a bitter pill to swallow but I think what we could have looked forward to would have been a couple years of not getting anything if Greece had defaulted.

Ryssdal: You are what’s known in the trade as a high-yield guy — you go looking for these risky investments, right? That’s your thing.

Humes: Yeah, I think that we do high-yield and distressed globally, but yeah, we’re high-yield investors.

Ryssdal: Which means what? Lay that out for me in terms of how you go looking at these countries. I’m trying to get to the point of why Greece was interesting to you in the first place.

Humes: Oh that’s pretty tricky. Really, really complicated from the outside and frankly, on the inside, it’s really complicated. But we’re trained, we understood, we’ve been there before. What’s going on in Europe is not unfamiliar to anybody who’s been involved in what’s now considered to be the emerging markets. What it’s telling us is that financial and legal advisers to Greece are also the financial and legal advisers to the Ivory Coast, to Ecuador, to Argentina.

Ryssdal: It sounds a little bit like there’s this gang of usual suspects who go around the world, having to deal with this stuff.

Humes: You know, when you get a country that has too much debt and it can’t afford to pay it, you have to go back to the precedents, and it is the usual gang of suspects who understand what the playing field is.

Ryssdal: Is it possible that Greek debt is now a buying opporunity?

Humes: If you look at where it’s trading now and the possible value, yeah, I think it does look potentially interesting.

Ryssdal: ‘Interesting,’ I love that word. That’s great.

Humes: Well listen, there are no guarantees in this world. But the risk on this I think is pretty low, I think it’s going to happen, I think it’s going to happen pretty quickly. So you know, there is a possibility to buy bonds and make money. But this is not a retail trade. Yeah, I don’t think this is something that if you’ve got a retail account you go looking to buy some long-dated Greek bonds.

Ryssdal: Hans Humes, he’s the president of Greylock Capital Management. He owns some Greek debt. Mr. Humes, thanks a lot for your time.

Humes: No problem, thank you.

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