Wednesday 22 February 2012

Greek law on the CAC's. Timeline

The law introducing CAC’s retroactively was submitted in the Greek parliament. First the timeline:
  • The PSI will be launched by the end of this week. i.e. 24 Feb
  •  It will close by the 9th March and the participation plus CAC will be done by then.
  • The bond swap will be done on th12th March 
With regards to the alteration of the terms of the Greek bonds.  The new law submitted to the Greek Parliament says:

1) Only bonds issued before 31Dec 2011 are going to be considered for the alteration. This presumably is done in order to exempt the ECB which according to reports swapped their bonds with newly issued in 2012!!!2) For the process to go ahead they need at least 50% of the total outstanding volume. 
3) For the alteration of the terms  to happen they need 2/3 of those who voted. So for example if out of 200billion only 100billion cast the vote then the process goes ahead. If out of the 100billion who voted at least 66.67billion vote yes for the alteration then it goes ahead. 
4a) Greece would not activate the CAC but will have the vote do it. In other words there seems to be no voluntary option any more. The bondholders would vote for the deal to become binding for everyone.
5) Greece considers this to be of highest public importance ("overriding mandatoryprovisions", "lois d'application immediate/lois de police". This effectively stops the application of contractual European law to Greece on this matters.  Bondholders lose right of appeal and have no recourse. Effectively all those who plan to go to European courts would have a mountain to climb as the Hellenic Republic makes this law above and beyond Europe’s reach as it claims to be for the public interest.
6) The Greek PDMA (Public Debt management Agency would publish which bonds would become eligible for the alteration later this week
7) The holdings of the Hellenic Republic do not have right of vote and will not count towards the total. This presumably means the former SMP holdings which have not been destroyed. We do not know whether they include holdings of the Greek state pension funds or the Bank of Greece.
So the decision of 2/3 of those who participate would irrevocably bind everyone. I expect this to create a lot of noise and problems for Greece and the bondmarket going forward. If reports of the ECB exit are true then this is not just immoral but could become the basis for legal action as it shows intention to save some investors at the expense of others.