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Greek PSI: The CACs, the CDS and the “Credit Event”

The activation of the Collective Action Clauses  (CACs) seems inevitable. State broadcaster NET TV (12 pm) cited a Greek government official saying that the CACs’ activation is sure at 99.5%, because without the CACs, Greece would need 20 billion euro more [on debt restructuring], something which is impossible.

Greece will force unwilling bondholders into the PSI deal, an action aiming to increase the Greek bond swap participation at a rate of 95.7%. Will the enforced debt restructuring result into a potential  credit event?  The International Swaps and Derivates Association will meet today at 1300GMT ( 3 pm Greek time) to decide on the issue after a relevant question. If the ISDA decision is affirmative, it could trigger CDS payouts worth some 3 billion euro. Who will come up for this amount? The banks and the insurance companies that have issued the CDS.  

A special committee of the International Swaps and Derivatives Association will meet at 1300GMT Friday to consider a question from a market participant on whether Greece has suffered a credit event, ISDA said in a statement.

According to Dow Jones Newswires, Greece on Friday announced results of its distressed-debt exchange with private creditors, with 85.8% of bondholders pledging to participate. It said it would invoke new legal powers–known as collective action clauses–to force holdouts into the deal.

If the ISDA committee rules that a credit event has occurred, it could trigger payouts on US$3.2 billion of insurance-like contracts covering Greek sovereign debt.

“A question relating to a potential credit event with respect to the Hellenic Republic–Greece–has been submitted to, and subsequently accepted for consideration by, the EMEA Determinations Committee,” ISDA said in a statement on its website.

It added the committee would meet “to discuss the question and to determine whether a credit event has occurred.”

ISDA didn΄t immediately provide details of the question posed. But it most likely involves Greece΄s intention to use legal means to force unwilling bondholders into the deal. (Further Reading Capital.gr)

The swap of the old Greek bonds will start on Monday, March 12th 2012 and as much as I understand the exchange will take place within 24 hours.

The PSI , the Greek bond Swap or debt restructuring, will make the Greek debt sustainable and will reduce it to 120% of the GDP until 2020, so the forecast of the International Monetary Fund.

PS: Got some headache? Me too….

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3 comments

  1. what is interesting in this whole Greek debt story is the aspect of accountability or more precisely, the lack thereof. In an interesting article published in Bloomberg MArch 6th, the deal between the Greek government and Goldman Sachs is summarised from different points of views, but we all know the background. Nonetheless, I am amazed that the officials in charge of it didn’t end up in prison, as they clearly committed a crime against their people and did not act in the interest of their people even if it was not voluntary. You can’t just bargain the future of a whole nation! (would be good if KTG would make a bit more noise about it)

    http://www.bloomberg.com/news/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html

    ”Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start.

    On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said.”

    • keeptalkinggreece

      accountability? prison? Greek prisons are full. Furthermore, Greek taxpayers may refuse to provide free meal and shelter to guilty politicians. And you’re right. We could make more noise on this.

      • OK, I’ll bite: why is there not more noise on all these things? Even now? I can understand that there wasn’t in the past, because nearly everybody had the believe/dream they would somehow benefit too from this whole system. So ‘omerta’ seemed logical. But now?
        Is the answer today, 2012, that there is simply to much?