Greek prime minister Lucas Papademos gave an important interview to the NYT on Monday night. Think for a minute about the natural fractiousness of bondholders, and then read this:
Mr. Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion from Greece’s unwieldy $450 billion debt, the country would consider passing a law to require holdouts to take losses.“It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,” Mr. Papademos said. “It cannot be excluded. It is contingent on the percentage.”
This is a pretty clear message: if the bondholders don’t agree to Greece’s terms, then Greece can simply force them to join the exchange. Greece’s bonds are issued under Greek law, and Greece can change its own domestic law any time it wants.
My guess is that this is exactly what’s going to end up happening. Papademos has two sets of advisors: its bankers, Lazard, and its lawyers, Cleary Gottlieb. Lazard’s Greece team is headed by Mark Walker, the former managing partner at Cleary Gottlieb, and Cleary’s Greece team is headed by the dean of sovereign debt advisors, Lee Buchheit. Bondholders, in general, have a lotof experience going up against Walker, Buchheit, and Cleary generally. And whenever that’s happened, the sovereigns have won, and the bondholders have lost. Just ask anybody who held Russian domestic debt in 1998: Russia’s lawyer, back then, was Mark Walker.