Greek PSI: Venizelos Warns That Greece May Activate the CACs

Finance Minister Evangelos Venizelos warned that Greece may activate the CACs (collective action clauses) in case private creditors won’t participate in the bond swap, essential precondition for the second bailout for the debt-ridden country.

“Whoever thinks that they will hold out and be paid in full, is mistaken,” he said. “We are ready to activate CACs (collective action clause to enforce losses) if needed,” he said.

The deal clinched by euro zone finance ministers in the early hours of February 21 involves investors taking a nominal 53.5 percent loss, which equates to a real 73-74 percent loss, on their Greek bonds in a deal aimed at rescuing Greece from a chaotic default by cutting its debt mountain by around 100 billion euros.

Venizelos said he was optimistic participation would be over 90 percent, with investors lured by the sweeteners offered – a cash equivalent upfront payment, a new bond issued under English law, a GDP warrant offering higher interest if the Greek economy does better than expected and equal treatment for the new bonds with the public sector.

“Our target is near universal participation,” he said. “No one should imagine that there will be a second offer that will include these elements.”

Venizelos said participation was impossible to gauge right now but investors should be putting in their responses by Wednesday.

Greece has said it wants 90 percent take up. If it falls below that but exceeds 75 percent, it will consult with its EU and IMF partners on how to fill the gap, with or without activating CACs. Below that level, the deal would be off, potentially plunging the euro zone back into crisis.

A group of the biggest holders of Greek government debt said on Monday they would take part. Twelve banks, insurers, asset managers and hedge funds in the steering committee of bank lobby group IIF, which helped negotiation the bond swap deal, said in a statement they would take part in the exchange.

They include BNP Paribas, Deutsche Bank, National Bank of Greece, Allianz and Greylock Capital Management. (Capital.gr)

Bloomberg reports that Germany’s DSW investor protection group advised private sector bondholders to reject the Greek bond offer. The economic news website, adds that “the Greek government has set a 75 percent participation rate as a threshold for proceeding with the transaction, in which investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility.

“Erik Nielsen, chief global economist at UniCredit SpA in London, said enough creditors will probably participate in the writedown to avoid triggering so-called collective action clauses, which could be used by Greece to compel investors to participate and roil markets by triggering credit-default swap insurance contracts.

“If we can avoid the triggering of CDSs this is the best solution,” said Venizelos. “With a near universal participation it’s not necessary to activate CACs. But this clause exists in our legal order and we are ready to implement the legislation if necessary.”

Euro-area finance ministers will hold a teleconference on March 9 to review the deal’s outcome.”