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As Greece Deems 66% CAC Bondholder Acceptance Sufficient, Has It Threatened To Scuttle Its Bailout All Over Again?
According to the Wall Street Journal, the Greek threshold for "successful" CAC passage is now expected to be just 66%, far below the 95% discussed yesterday. Says the WSJ: "The Greek government is aiming for a minimum participation of least two-thirds of bond holders in a planned debt exchange, a finance ministry official said Tuesday, with a formal offer on the exchange expected to take place by the end of this week. The deal, which aims to erase some EUR107 billion from Greece's debt burden, is part and parcel of a related EUR130 billion loan deal agreed to by euro-zone finance ministers in the early hours of Tuesday." As was extensively explained in our subordination piece from January, this is the number of bondholders that have to agree to the Collective Action Clause, which if passed successfully, would avoid a CDS trigger as it would be then deemed voluntary by ISDA who are more than happy to avoid any type of contagion causes by CDS triggers - they are after all a banker-owned organization. We ignore how a 66% participation rate is anything but a majority, let alone supposedly consensual. There is a bigger issue. And unfortunately by the Greek's actions, it shows they are in process of abrogating even more contractual rights in the form of foreign (UK-Law) covenant agreements. Either that, or the country is about to pay par to all UK-law bonds, both outcomes that threaten to put the entire second bailout in jeopardy.
As a reminder, and as we pointed out in January, "where the process falls squarely on its face, is the fact that Greece also has issued a modest amount, somewhere over €25 billion face, in bonds issued under UK-law. These are bonds which already have Collective Action Clauses and which as Stephen J. Choi and Mitu Gulati explain, come in two flavors: "Those that were issued prior to 2004 contained CACs that allow holders of 66% or more of an issue to modify payment terms in a manner that would bind all other holders. The bonds issued after 2004 require the consent of holders of 75% or more of an issue." Incidentally, this is where the Greece has the upper hand argument fails because while Greece can force local-law bondholders to do pretty much anything, it has no chance of doing that if a given hedge fund cartel has already built up a blocking stake in the UK-bonds. Choi and Gulati go on to state the obvious: "Obtaining approvals from between 66% and 75% of the bonds is likely to be difficult." And this is where the game gets interesting, because while the bulk of the bonds, or what is now becoming obvious is the junior class, can be impaired with impunity (pardon the pun), it is the UK-law, or the non-domestic indenture, bonds, which are the de facto fulcrum security. And since the notional outstanding here is tiny, it is quite easy to build up a blocking stake in the bonds and to obtain full control of the process, especially since the ECB appears to have been building up its own stake in local-law bonds."
In other words, if Greece does rule that the 66% threshold is enjoining, it means that a collective class of UK-law bonds has just had their covenant protection stripped, despite them being issued under UK-law, something which will set the entire sovereign bond market on fire, as it takes the threat subordination to a whole new level. In yet other words, a hold out class is no longer a hold out class, even if it controls more than 25.1% of the strong-law protected class. Either that, or hopefully more likely, instead of starting an epic litigation of UK-law bonds, Greece is simply preparing to pay par to the minority of UK-law holders, which are expected to block the deal, sue, and hold out for par as Greece will be subject to UK law (in which case keep an eye out on the price of the UK-law bonds which comprise half of all outstanding 2016 issues).
And while UK-law bonds may be de minimis, or between €25 and €40 billion of the total as estimated before, this is still a massive amount when considering that any difference between the non-UK law bonds and par for this class could amount to an additional €20-€35 to the barely agreed upon €135 billion rescue package.
So have the creditors once again succeeded in pulling a fast one on Greece which continues to stun the world with its unbelievable misundestanding of bond law?
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this is all utter bullshit, bitchez
CQTM...
We've known CDS to be bullshit but now the bond markets are competition.
Maybe it's all bullshit.
So have the creditors once again succeeded in pulling a fast one on Greece which continues to stun the world with its unbelievable misundestanding of bond law?
Been my contention all along. No way big money is ignorant about who has the leverage.
I'm looking to buy a bond that pays me shit for 30 years so before it reaches maturity I'll have buyers out the ass.
The rules will be changed as TPTB decide.
Some newspapers are fit only to line the bottom of bird cages.
So it won't be a surprise when the Greek default actually happens and we expect it one way or the other to be relatively soon.Spiro T. Agnew
Lucas Papademos
Is it possible that my people live in such awful conditions? I tell you, Mr Wheatley, that if I had to live in conditions like that I would be a revolutionary myself.
King George V
I am the State. It is legal because I wish it.
Louis XIV
I am the State. It is legal because I wish it. - Louis XIV / Bernanke / ECB / EU / USA
Noth'in like making the rules up as you go along ... 95% - NO!, make that 75%. On second thought, make it 66% ...
Everytime I think this can't possibly get any more ridiculous, I'm proven wrong ...
Stalin baby
What I would like expplained to me is why anyone would voluntarily agree? If if just let them default doesn't my CDS make me whole?
well, since the bank that issued your CDS gets to determine what constitutes a "default", no. But assume that they did decide to call it a 'default', then, yes ... but then your bank fails, so ... looks like you're screwed either way.
clear as mud? ;) ... listen to this for a beter answer to your question: http://www.jsmineset.com/2012/01/30/the-impending-undeclared-default-of-5-major-us-banks/
Could somebody turn off the Matrix? I want out.
Here, take this with a glass of water. See you in the morning.
Does that mean the "Future will be different tomorrow"?
<jazz hands!>
And yes, bullshit it is sirah
This HAS GOTTEN VERY OLD...................the Greeks are playing them like $2.00 hookers.
Ya think? ... to me it looks to be the other way around. Greece holds all the cards, they just haven't come to that realization yet ... but when they do, watch out. This version of the European Flu is going to be VERY contagious.
<---- New Avatar, Glitchez!*
* Update: no longer the case
Anonymous visuals mode.
Contra was the shiznit back in the day, I remember jumping up the waterfall level ASAP as it would kill my friends and piss them off, ohhh the good old days when gas was less than a dollar a gallon :)
As I have said, the "contagion" that the ECB seems to be so deathly afraid of, will be started by the ECB itself.
Sweet Socratic irony.
And they want to privatize some of their assets? Who the hell will buy anything from them that can't be moved offshore
Default any time this year....PLEASE!!!
I have no money to be made from a default, so I'll take all the time I can get before the dominoes start to fall. May it take many more years for this global ponzi scheme to come crumbling down!
I want a deflation scare so I pick some stuff up on the cheap. A greek default would be just perfect for this. Will have to wait a few more months and accumulate some fiat.
Does Veagas have a line you can bet on soverign defaults?
Were all stars now ~ in the dope show
Zerohedge go boom?
Who pwned Zerohedge? We're all bagheads now, and I briefly had a "you're not authorized" error. The comment window is also effed up.
That reminds me, much thanx to Durden & Team. See you on the other side ...maybe.
Lol doesn't seem like markets care too much about greece news Greece Deal Is Done, Does The Market Even Care?http://www.traddr.com/video/greece-deal-is-done-does-the-market-even-care
I luv Zero Hedge however I am not as knowledagble as some of the other readers. Could someone please explain what exactly does this mean? Are we talking a defualt on March 20, 2012. I am still confused? Any thoughts would really be appreciated.
Da Fault? Da Fault is all ours... For putting up with this sheeeit for decades...
Well, I am not knowledagble either, but I'd guess that it means no one will know.
Or, as I learned in the Marines, Semper Gumbious! (Always Flexible)
I am basically a total noob, especially when it comes to sovereigns, but from what I've learned here Greece has been done for since the whole damn thing began. What the ECB is doing is prolonging the inevitable, while trying to rescue mostly it's member countrie's banks while trying to get the politicians re-elected without fucking up the Euro too much. As well as you can tell, they're failing. The only real question now is how much worse will the outcome be.
As per your March 20th question, I don't know. I get the feeling they'll think of something to save them this time around and then default while most people are on summer vacation.
Thanks your words make sense!
And they are trying hard to make you think retroactive rule changes and a 50% write down isn't a default :D
Cac means the owners of the debt agree to take a loss. But it's voluntary. They will get new bonds and go forward.
They need 2/3 to agree...ie that would reduce enough debt to make it theoretically manageable. This, of course, is untrue.
A CDS is insurance on your bond. If they don't take the cac or rather if enough don't then theoretically they default on the 20th when 30 billion in euro denomination get handed in for redemption...someone could show up and help...which is what I think will happen.
That way this gets extended into oblivion...unless Greece comes to its senses and just defaults...
"That way this gets extended into oblivion ... unless Greece come to its senses and just defaults..."
Correction: That way this gets extended until this summer when Spain and Italy become the problem, and there isn't a sugar daddy in existence with big enough pockets to come to the rescue of that clusterfuck.
10% of the Greek bonds ($20B of $200B - don't quote me) use UK as the venue for dispute resolution and explicitly state that if 75% (one series) or 66% (second series) of the bondholders agree to a haircut then the remainder of the bondholders can be forced to take the haircut. 75% of $20B is $15B which is the dollar amount hedge funds have been collectively hunting down and accumulating so as to control the haircut negotiations. The clueless 9to5 ECB bureuacrats are oblivious to the tactical error they are walking backwards into. The hedgefunds can even leverage their negotiation strength to impact the Greek venue bonds. Call it Custard's Last Stand, or the Maginot Line, or from more recent history the Mother of All Battles. Greece was being cute using derivatives to hide thier debt to enter the Euro. They who live by derivatives die can also be wiped out by derivatives.
Popcorn machine seriously overheating here. Thanks for yet another great post ZH!
The Final Dilution Solution Part 27. ..this is Groundhogs Day Meets FUBAR
the lead article is all very interesting in a technical, legalistic way, but it is completely missing some important realities in 2012. there is precisely nothing a private party, feeling legally aggrieved, can do about the actions of Greece. so it really doesnt matter what is the letter of the law on the subject. the whole thing is operating with an incidental relationship with legality anyway. bondholders, i am sure, are well aware that they are lucky to be getting back anything at all, and none but the utterly stupid will try to kick up some legal fuss about any aspect of it. why do you think the IIF has 'negotiated' a 73.5% NPV loss? i dont think there will be any epic bond litigation in the UK, and i dont think Greece's advisors are ignorant of bond law. they are just stuck in an Andean plane wreck, and eating human flesh to survive.
as one does in such difficult situations.
Well, if one assumes that the modern world can live without contract law between private parties, then yes. Otherwise, as Bill Gross cautioned...
Larry Fink totally not worried. We need more Pesto Bonds!
Precedent meets contagion....who coulda saw that comin ?
the ECB! and for now at least, 'contagion' appears to be the last thing on investors minds. no doubt you have seen the collapsing spanish and italian auction yields in recent weeks.
that is not actually true at all. this is not the end of the enforcement of contract law, just like it isnt the end of anything when a country defaults. there is no legal precedent involved either. nor is Gross' statement true. he means 'could be taken as risking the subordination of all holders of european sovereign debt'. it is entirely a practical matter of whether or not it is perceived that way. judging by the way investors have been hoovering up spanish and italian debt since the LTRO, with more cash coming next week, it would appear that they are not too worried. in reality, bonds will continue to be honoured as they always have done. some collateral damage along the way wont make any fundamental change.
anecdotally I have moved to retail Financial Services from Institutional in the last year and I am noticing a growing market for "alternative" investments by otherwise unsophisticated retail investors. I'm talking about investments that do not trade on exchanges or that are purchased through banks or insurance companies. I'm sure its all unrelated to what has been going on since 2007, or even the dot.com crash (sarc).
The wave is picking up and you won't get buried here today in February 2012, but when the music is over...turn out the lights.
wtf are you talking about?
judging by the way investors have been hoovering up spanish and italian debt since the LTRO, with more cash coming next week, it would appear that they are not too worried
investors???
investors???
No, really, investors???
You owe me a new keyboard.
I think the incidental legality of the current situation can only be described as subjective, and while those who are receiving whatever principal is left after the 73.5% cut can be attributed an equal amount of fault in this nonsensical transaction consisting of both imprudent creditors and careless debtors, one should wonder about the kind of precedent it creates for the rest of this unsustainable domino.
What kind of haircuts will be needed for Portugal, Spain and Ireland in the forthcoming future, since there will be similar demands as sure as the sun shines, despite the differences of the nationality covering the legal frame of the bonds, and how long will each bailout will manage to sustain the illusion of containment for each country in danger of defaulting, since the only measures taken are those of aggressive austerity resulting in stagnating growth, while the bailout funds are promptly being funnelled to the haircut-immune ECB?
I am so tired of the bullshit that I don't even know what to say other than.....Fucking default already you stupid cum guzzling gutter sluts! For cripes sakes you could have been on the road to recovery long ago. Screw the damn bankers. There is life after debt.
in case you havent noticed, the damn bankers are being screwed.
but dont worry, it is only depositors money, so who cares?
Anybody dumb enough to hold deposits at the banks in this environment deserves what they get.
even if i assume that is a fair statement, it is still the case that banks are already being screwed. to the tune of 73.5%.
Are they really getting screwed? I don't think so. Let's say they do lose 73.5%, they are getting a deal. The bonds at that level are still over priced. If they were getting screwed they would lose it all, because by all rights, those bonds are worth zero. The only thing providing value is the phoney support provided by the ECB.
ok so it depends on how one thinks of as "screwed". to some, losing 73.5% is "screwed". in another way, you might say it is a good result under the circumstances, and i agree it is. however, compared to the EU, the IMF, the ECB and the NCBs, they are being screwed!
The banks own bonds that if they were marked are at 23. They will get 15 in cash and 31.5 of new Greek bonds. Their best case is now a 50% recovery but that 75 npv is same as current market npv and has a better chance of going up.
Greeks have been pulling money out of banks left and right. It's been a slow run.
Yes, But i still have my free Waffle iron not to mention my complimentary coffee and danish
Um, no. The bankers are not being screwed. Do you get it? This entire bailout is for the bankers. That's the whole thing, so the bankers don't take a hit.
Bingo! If this gets labeled a default, the banks lose. But don't worry, that will never happen, cause as it turns out the guys who get to decide what constitutes a default are ... wait for it .... wait for it ... THE BANKERS.
Isn't it nice the way that all worked out?
Attention: All hands to printer deck 5.
Long Xerox.
who the fuck is on first..somebody please tell me!!!!!
You've got it, Who IS on first...
Since rumors drive the market (higher), Greece is not going away. As soon as it is 'settled', rumors evatorate and so does the helium (hopium) in the markets.
Mr. Market just ran out of Viagra again.
is something wrong with nadex today?
S&P contracts just got flaged
Bribing 66-75% of UK law bondholders (to reach the CAC threshold) has to be cheaper for Greece/The ECB than paying out par to 100% of them.
How many separate, top holders would they have to deal with to get to that magic CAC number?
Hehehe not even 24 hours later...strike that I'm surprised it took as long as it did for the unintended politician and banker consquences to become apparent.
Whats the 3 o'clock rumor
The intro to this Reuters piece says it all:
No need to read any further. This is the end game. A complete oligarchy run by an ignorant and corrupt elite thinking they know about how economies operate, let alone being able to run them.
Nigel Farage has been prophetically beating this drum for years, but apparently he is off his rocker. So sayeth Pomeroy.
Asshats.
Hey at least Greece understands how to make good yogurt
"I think the phrase “Greek deadline” needs to enter the lexicon." - Forex news
LOL #market going negative
Algos vomitting bits and bytes up all over. Program was supposed to run on the "Greek fix" is in.
I fukin hate Greece.
These articles have such sexy, tantilising, come read me headlines I just get sucked into them every time.
I must have read hundreds now and evry time I swing from feeling sorry for them to undiluted anger towards them.
Fuck, if this was North Africa they would have somehow roped in Nato to help them out.
Someone send in the fuking drones and end this sharade.
Lets move on to something meaningful, like Spain?
Tyler, how many articles have you posted on ZH now re Greece, just curious.
Considering that nobody in the mainstream media has any clue what corporate restructuring is, let alone sovereign, we feel it is our duty to clarify all recent developments.
If you are bored, or want to move on to "something more meaningful", nobody is stopping you.
As always I salute you in your efforts to illuminate on debt restructuring. I may just post something about Spain though.
What's more dangerous? A Greek finance minister or an Italian cruise ship captain?
Greece is like an Iceberg
melting and waiting for a German Titanic
wr;)
much has been said about the simple-minded sheeple "Retail Investor"
most of it misleading and designed to pull Retail Investors back into
what remains of the broken and rigged global financial ponzi scheme once refered to as "financial markets".
Tell a lie a thousand times, it is still a lie.
Financial Markets have lost all credibility a long time ago...
The Dow Jones industrial average rose 41 points, or 0.3%, after briefly topping 13,000 -- a level not seen since mid-May 2008. "It's significant because anything that helps pull the retail investors back into the market is helpful," said Dick Head-Momo Chief Market Strategist at Ponzi Scheme Trixters Group.
"A nice round number (like a Zero) is a good thing."
ha ha ha
wr;)
Can we expect this "on-again, off-again" thru the election?
Clap on (clap-clap), Clap off (clap-clap) Clap on-Clap off, The Clapper!
MUST READ
http://www.scribd.com/doc/82358492/Eurostudy-0212-Primer-Euro-Breakup-De...
PP
On March 20th.
Hedge funder: Where's deMonee?
Papademos: Who?
Hedge funder: deMonee !!! deMonee !!!!
Papademos: You'll have to go to Paris for that.
Hedge funder: All our CDS have triggered ! Call UBS please.
UBS operator: Hello. Welcome to UBS. How may I help you?
Hedge funder: Where's deMonee ? I need to speak to Count deMonee please.
UBS operator: I'm sorry sir, he went over to Bank of America.
Can we say B of A at 2 dollah a share?
This seems to make the Troika debtor in possession?
Blame it on the "Black Scholes equation".. USD 32 trillion worth of worthless paper ( as of July 2011 )
http://www.scribd.com/doc/82374342/The-Mathematical-Equation-That-Caused...
PP
Dont Pay the Ferryman
youtube.com/watch?v=8kNwvIEQsg0
I'm sure this is a stupid question, so please humor me.... Given all of this CAC business, are there going to be any more "Private Investors" buying Greek bonds anymore, or CDS for that matter? And if so, why? I don't understand why they can do this and still expect people to buy these things.
Loan sharks knew that if they took the dollars printing machines under their control they could suffocate the world ...they could initially suffocate USA and after taking the USA from the Americans, they could move and suffocate the whole world and take the countries from their people.
FED printed cheap money and loansharking multiplied this money in an unnatural way within the American economy boarders and they discarded them abroad so that they did not threaten USA. USA became the first state in the world with artificial “breathing”...
It cannot be possible but just in the USA for only the last year, more than one million houses were seized. It cannot be impossible but the New World has returned to tents and shelters ..has returned to the ages of Columbus. It cannot be possible that we allow to a few loan sharks looting the toils and the assets of people...
http://eamb-ydrohoos.blogspot.com/2012/01/global-debt-crisis.html
------------------------
Global Debt Crisis
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