What it is:
A haircut is a reduction in an's value.
How it works (Example):
For example, let's say the Greek government borrowed about $483 billion from banks,and other groups. Now it can't pay it back. So if an investor owns a Greek with a of, say, $1,000, the Greek government is now agreeing to pay back only $300. This means the investor take a $700 haircut.
Why it Matters:
Why would an investor settle for this? Because $300 is more than $0.
In a haircut situation, the only thing debt, so the new objective is to get the borrower to pay back as much as possible.can do is get together with other and try to renegotiate with the borrower. Everybody goes into a crummy situation like this knowing that the borrower is probably never going to repay 100% of the
A haircut doesn't always that the are just going to let the borrower off the hook, though. The might cut the interest rate on the debt way back or push the date way out into the future. In our example, Greece might agree to pay back your $1,000, but they might do it at 2% for the next 30 years instead of 5% for the next 10 years.