Reuters, on signs of a push to make Greece’s debt restructuring coercive rather than “voluntary”…
Athens could squeeze out bondholders by changing the law so that the terms of any untendered bonds would have the same terms as the new ones, if a majority of debtholders — for instance 75 percent — voted in favour of the exchange.
Greece could change its laws, which for the largest part do not contain so-called Collective Action Clauses (CAC) to squeeze out minorities, and introduce an aggregated rule imposing new conditions on outstanding bonds.
“They’ve not yet come to that point. But you can look down the road and you can see pretty clearly where this thing is going to shake out,” the person [familiar with negotiations] said.
“It would be a very mild use of legislative power, and obviously far milder than passing a law saying (everything worth) 100 now is (worth) 50.”
Resistance against any form of CAC had largely come from the European Central Bank (ECB) and the French government, but these were now also leaning towards their use, the source said: “voluntary has become code word for CAC”.
“It is the same meaning of voluntary that would be true if I stepped out on the 38th floor (of my office), I would voluntarily subscribe to the law of gravity. The splat would be the same,” the person said.
Note that the official creditors could still easily squash this idea, if they still don’t like allowing CDS to trigger.
But…
From “How to Restructure Greek Debt” — a truly brilliant 2010 paper from Lee Buchheit and G. Mitu Gulati:
One legislative measure that might be perceived as balanced and proportional in these circumstances, however, would be to enact what amounts to a statutory collective action clause. It could operate in this way: local law would be changed to say that if the overall exchange offer is supported by a supermajority of affected debtholders (say, 75%, to use the conventional CAC threshold), then the terms of any untendered local law bonds would automatically be amended so that their payment terms (maturity profile and interest rate) match those of one of the new instruments being issued in the exchange.
Such a law, let’s call it a “Mopping-Up Law”, would thus operate in the manner of a contractual collective action clause in a syndicated debt instrument. Once the supermajority of creditors is persuaded to support an amendment to the payment terms of the instrument, their decision automatically binds any dissident minority.
Prescient or what!
Lee Buchheit’s firm, Cleary Gottlieb Steen & Hamilton, currently advises the Greek government.
Related link:
Who wants to be a Greek bond (versus CDS) holdout? – FT Alphaville