Hedge Funds Trying to Profit From Greece as Banks Face Losses

Bloomberg
January 12, 2012

Hedge funds in New York and London are trying to profit from trading Greek government bonds as European banks brace for losses from a debt swap.

Saba Capital Management LP, founded by former Deutsche Bank AG (DBK) credit trader Boaz Weinstein, York Capital Management LP, the $14 billion fund started by Jamie Dinan, and London-based CapeView Capital LLP are among managers that now hold Greek bonds, according to people with knowledge of the transactions who declined to be identified because they weren’t authorized to speak publicly about the trades. Officials at all three firms declined to comment on the holdings.

They’ve amassed the holdings as the government lobbies investors to accept a swap that would cause losses of more than 50 percent for bondholders. For the deal to avoid triggering credit-default swaps that could cause losses for more of the region’s banks, the agreement has to be voluntary. Hedge funds are unlikely to accede, analysts say.

“I would expect to see some holdouts,” said Sudeep Singh, a hedge fund manager at Matrix Group Ltd. who doesn’t own Greek debt. “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.”

Some fund managers say they have little incentive to accept the swap, and are seeking full payment. If Greece refuses to pay the funds what’s owed to them, the funds may seek to trigger the credit-default swaps. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

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