London- and New York-based hedge funds are among those that hold Greek bonds and are resisting haircuts advocated by the Greek government to help the country avoid default.
If they stick to their guns and refuse to accept what the European Central Bank says must be a voluntary cut in value, they could trigger credit default swaps, which in turn would create a "credit event" that could substantially escalate the debt crisis.
Unidentified sources cited in a Bloomberg report said former Deutsche Bank credit trader Boaz Weinstein's Saba Capital Management, Jamie Dinan's $14 billion York Capital Management and London-based CapeView Capital are among those now holding Greek bonds. The Greek government has been pressing banks and other creditors to accept swaps that would result in losses of more than 50% in value, and to do so voluntarily.
Sudeep Singh, a hedge fund manager at Matrix Group Ltd. who doesn't own Greek debt, was quoted saying, "I would expect to see some holdouts. The industry breaks down into guys who want to keep on fighting and into guys who just want to get the best deal and move on. It's all a question of what price you got in at."
A default would trigger a "credit event," which would bring severe consequences that would worsen the debt crisis. CDS, which pay the face value of securities in default in exchange for the securities themselves or a cash equivalent in the event that a borrower fails to meet its obligations, could be triggered by hedge funds that refuse to accept a voluntary swap for securities of lesser value.
