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As Greece Deems 66% CAC Bondholder Acceptance Sufficient, Has It Threatened To Scuttle Its Bailout All Over Again?

Tyler Durden's picture


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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Tue, 02/21/2012 - 16:25 | 2182002 taraxias
taraxias's picture

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



No, really, investors???


You owe me a new keyboard.

Tue, 02/21/2012 - 16:29 | 2182017 Scalaris
Scalaris's picture

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?

Tue, 02/21/2012 - 15:56 | 2181896 Dr. Engali
Dr. Engali's picture

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.

Tue, 02/21/2012 - 16:00 | 2181907 alexanderstollznow
alexanderstollznow's picture

in case you havent noticed, the damn bankers are being screwed.

but dont worry, it is only depositors money, so who cares?

Tue, 02/21/2012 - 16:03 | 2181927 Dr. Engali
Dr. Engali's picture

Anybody dumb enough to hold deposits at the banks in this environment deserves what they get.

Tue, 02/21/2012 - 16:12 | 2181954 alexanderstollznow
alexanderstollznow's picture

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%.

Tue, 02/21/2012 - 16:17 | 2181974 Dr. Engali
Dr. Engali's picture

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.

Tue, 02/21/2012 - 16:21 | 2181991 alexanderstollznow
alexanderstollznow's picture

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!

Tue, 02/21/2012 - 16:19 | 2181984 oogs66
oogs66's picture

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.

Tue, 02/21/2012 - 16:16 | 2181969 catacl1sm
catacl1sm's picture

Greeks have been pulling money out of banks left and right. It's been a slow run.

Tue, 02/21/2012 - 16:16 | 2181970 LouisDega
LouisDega's picture

Yes, But i still have my free Waffle iron not to mention my complimentary coffee and danish

Tue, 02/21/2012 - 16:21 | 2181988 WonderDawg
WonderDawg's picture

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.

Tue, 02/21/2012 - 16:49 | 2182117 bdc63
bdc63's picture

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?

Tue, 02/21/2012 - 15:57 | 2181899 fuu
fuu's picture

Attention: All hands to printer deck 5.

Tue, 02/21/2012 - 15:57 | 2181901 taniquetil
taniquetil's picture

Long Xerox.

Tue, 02/21/2012 - 15:58 | 2181903 Kaiser Sousa
Kaiser Sousa's picture

who the fuck is on first..somebody please tell me!!!!!

Tue, 02/21/2012 - 17:05 | 2182204 Westcoastliberal
Westcoastliberal's picture

You've got it, Who IS on first...

Tue, 02/21/2012 - 16:00 | 2181917 Bear
Bear's picture

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.

Tue, 02/21/2012 - 16:01 | 2181919 Frank N. Beans
Frank N. Beans's picture

Mr. Market just ran out of Viagra again. 

Tue, 02/21/2012 - 16:06 | 2181932 PicassoInActions
PicassoInActions's picture

is something wrong with nadex today?

S&P contracts just got flaged


Tue, 02/21/2012 - 16:09 | 2181936 Mercury
Mercury's picture

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?

Tue, 02/21/2012 - 16:07 | 2181937 Global Hunter
Global Hunter's picture

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.  

Tue, 02/21/2012 - 16:08 | 2181942 Irish66
Irish66's picture

Whats the 3 o'clock rumor

Tue, 02/21/2012 - 16:13 | 2181960 Moneyswirth
Moneyswirth's picture

The intro to this Reuters piece says it all:

Greece is now officially a ward of the international community.

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. 


Tue, 02/21/2012 - 16:18 | 2181976 PIIGS in a Blanket
PIIGS in a Blanket's picture

Hey at least Greece understands how to make good yogurt


Tue, 02/21/2012 - 16:17 | 2181977 carbonmutant
carbonmutant's picture

"I think the phrase “Greek deadline” needs to enter the lexicon." - Forex news

Tue, 02/21/2012 - 16:19 | 2181982 walküre
walküre's picture

LOL #market going negative

Algos vomitting bits and bytes up all over. Program was supposed to run on the "Greek fix" is in.

Tue, 02/21/2012 - 16:23 | 2181996 Ag1761
Ag1761's picture

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.

Tue, 02/21/2012 - 16:43 | 2182098 Tyler Durden
Tyler Durden's picture

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.

Tue, 02/21/2012 - 17:01 | 2182178 Ag1761
Ag1761's picture

As always I salute you in your efforts to illuminate on debt restructuring. I may just post something about Spain though.

Tue, 02/21/2012 - 16:27 | 2182009 Moneyswirth
Moneyswirth's picture

What's more dangerous?  A Greek finance minister or an Italian cruise ship captain?

Tue, 02/21/2012 - 17:29 | 2182319 Die Weiße Rose
Die Weiße Rose's picture

Greece is like an Iceberg

melting and waiting for a German Titanic


Tue, 02/21/2012 - 17:05 | 2182133 Die Weiße Rose
Die Weiße Rose's picture

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  


Tue, 02/21/2012 - 16:52 | 2182135 f16hoser
f16hoser's picture

Can we expect this "on-again, off-again" thru the election?

Tue, 02/21/2012 - 17:04 | 2182194 Westcoastliberal
Westcoastliberal's picture

Clap on (clap-clap), Clap off (clap-clap) Clap on-Clap off, The Clapper!

Tue, 02/21/2012 - 20:26 | 2182837 flyonmywall
flyonmywall's picture

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?



Tue, 02/21/2012 - 20:27 | 2182841 Nobody For President
Nobody For President's picture

This seems to make the Troika debtor in possession?

Tue, 02/21/2012 - 21:41 | 2183062 PORTA PORTA
PORTA PORTA's picture

Blame it on the "Black Scholes equation".. USD 32 trillion worth of worthless paper ( as of July 2011 )





Dont Pay the Ferryman


Tue, 02/21/2012 - 23:40 | 2183295 balanced
balanced's picture

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.

Wed, 02/22/2012 - 07:29 | 2184137 Olympia
Olympia's picture

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...



Global Debt Crisis

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