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The Greek government finally accepted reality and asked for help from both the EU and the IMF. Greece has requested a 45 billion euro aid package. 30 billion euro will come from the EU in the form of loans at an interest rate of 5.00%. Another 15 billion euro will come from the IMF at a "lower rate."

The emergency funding was necessary because Greece's financial situation was much worse than first thought and it has 8.5 billion of government bonds coming due on May 19th. The knee-jerk reaction by many investors was one of relief. After all, Greece was just bailed out. Not so fast folks, the bailout could have strings attached. Strings that could choke bondholders.

Greece will undoubtedly be asked to engage in some kind of austerity plan. It's estimated debt to GDP ratio was raised to 13.6% form a prior estimate of 12.7%. This is far above the EU limit of 10%. Many countries would try to devalue its way out of such a situation, but Greece cannot do that as it has the euro as its currency. What it can and may do is restructure its debt.

Restructuring debt is not unusual. Developing countries and troubled corporations have done so in the past. A restructuring usually entails exchanging existing debt for longer-term debt. This will put debt repayment out to a time at which the issuer is hopefully in better shape to repay its debt. However, a restructuring often occurs at less than 100% cents on the dollar. This is no what many speculators bargained for.

Many investors have become accustomed to too-big-to-fail as being the rule of thumb. That has not always be the case and may not be the case going forward. Greece may not try to haircut investors, but it is definitely a possibility. Investors should keep the possibility in mind when considering investing in Greek bonds or other very distressed debt.

Disclosure: Long C, BAC, F, SIRI, FRE, PRZ

Source: Greece's Ongoing Odyssey