The estimates of both the required and actual levels of participation in Greece's PSI bond swap offering tomorrow are best described as – "all over the place". Using my gorilla math, it seems that anything below 50% of private sector bondholders participating is outright failure, as if the PSI never even happened. Between 50 and 66% (or is it 75%?) is pretty much a failure as well, since Greece will be forced to use CACs illegally and trigger CDS, as well as increasing the odds of successful litigation and recoveries by holdouts. Above that threshold but below 90-95% means the CACs can be retro-actively inserted without triggering CDS, and near ubiquitous participation means that CACs aren't even needed.
So where does it all stack up one day before the swap gets underway? That's considerably less certain than the required levels above. From what I understand so far, the IIF's "steering committee", plus other significant bondholders who have recently announced their intention to participate, represents a total of 40% of outstanding Greek debt to be restructured. Obviously, that's well below what is needed for even a slightly successful swap. For what it's worth, here is RBS' estimate on how it will all end up, via The Telegraph's live blog (note that RBS is one of the banks that has already agreed to participate):
It is relatively easy to imagine that the participation rate amongst 'regulated' institutions will be close to 100% given that they have for most of them already written off the bulk of their exposures and because of the negative stigma that would be attached to a financial institution singled out as non cooperative. Banks are believed to own around Eur90bn of bonds (at face value and including Greek banks). Insurances companies are believed to own around Eur15bn and are also very likely to be participating in the deal which would lift the participation rate to 51%. Add the Greek social security funds and the participation rate reaches 63%. Based on IIF communication and press reports we arrive to a slightly lower level of 58% (see table below). The bottom line is that we believe that the participation rate will be at the very minimum around 60% (between 58% and 63%) and most likely close to 70%.
I'm not sure if RBS has factored this in, but Greece has also assembled a veritable coalition of back-up support. Greek banks, for example, are most definitely going to participate (I wonder what kind of fireworks would go off if the banks set to be immediately recapitalized by the Troika bailout decided to decline the restructuring offer tomorrow…). On top of that, Cyprus just announced that it has every intention of participating with enthusiasm and gusto (what would happen to Cyprus if Greek defaulted and got the boot?). Let's see… who else? Oh yeah, Apple said it may donate a few iPads to the cause, and U.S. Senator McCain stated he would drop a few bombs on Syria tomorrow as a distraction, in case the PSI isn't doing so hot. A Coalition of the Willing, ready to roll son!