The alert John Dizard of the Financial Times has taken notice of a development that has passed most commentators by, namely, that Greece is starting to restructure state debts. This hasn’t yet gotten the attention it merits because it’s bonds issued by particular government bodies (in this case, the Greek state hospital system) and the investors aren’t big Eurobanks but suppliers. Old outstanding coupon bonds are being replaced with zero coupon bonds. The relevant ministries contend this amounts to a 19% haircut; Dizard thinks the discount rate is too low (hence the proper discount is even greater) and an expert who deals in particularly exotic debt thinks this paper will trade down a lot further.

Oh, and the haircut assumed by the ECB on sovereign debt in its stress tests? A mere 3%. And you have to love this tidbit from the joint press release by Greece’s ministries of Ministry of Health and Social Welfare and the Ministry of Finance:

It is certain that the banks co-operating with the suppliers will show interest in prepaying these bonds, transforming the corporate risk undertaken on behalf of their customers – hospital suppliers – in credit risk against the Greek state, in the form of a bond which can be financed through ECB.

More from Dizard:

…here is the Greek state telling you their old paper isn’t worth what it was when they incurred the obligation. Even before the new bonds are issued, some of the hospital debts are already said to be trading around Athens, supposedly at much lower prices than the release suggests would be appropriate. And while the release says the debts “will be settled”, major suppliers have not yet agreed to the hospital debt bloodletting. According to a London dealer in edgier emerging market paper, some of the suppliers have already been around to get a bid. Unsuccessfully, sad to say, even though the suppliers’ banks have that promise of “ECB” repo availability. He sniffs: “You won’t get a bid at 50 [per cent of face]. My guessing is that it is more like 30. We were appalled at the very low quality of the documentation.”…. Since the hospital debts do not yet have the artificial support of ECB market operations, perhaps any indicated bid side for this paper should be considered as a useful data point. That is, the price people would pay for what will soon be Greek state bonds, if they were investing their own money.

Yves here. Funny, that estimate that the debt will be worth 30% to 50% of par is exactly what S&P said recoveries on a Greece default would be.