Voluntary redefined...... Try 100 percent being deemed " voluntary "

Errant creditors could be forced into bond swap: sources

12 Jan 2012

File photo Greece could force reluctant creditors to sign up to a bond swap, three senior eurozone sources said on Thursday, as the country struggles to get enough private investors to participate in a second bailout it needs to avert default.   If a clear majority of the state’s private creditors agreed voluntarily to the bond swap designed to lighten its debt burdens, retroactive collective action clauses (CACs) could be imposed on others to compel them to do so too.   "Greece could introduce, retroactively, CACs on all outstanding bonds, and in this way force hedge funds, which are now holding out in hope of making a handsome profit, to sign up to the agreement," one of the three sources said.   Eurozone leaders agreed last October to provide 130bn euros in a second financing package for Greece if private bondholders agree to forgive 50 percent of what Athens owes them in nominal terms.   They would swap their existing Greek bonds for new ones. Also in this case hedge funds would profit, getting their Greek bond holdings fully redeemed if they stay out of the deal.   That is why the government is considering an unprecedented move of a retroactive introduction of collective action clauses on all outstanding debt.   "CACs are necessary to get the holdouts on board. Otherwise the eurozone summit's goal of a high participation rate is totally unrealistic," the second of the three sources said.   Such clauses would say that a debt restructuring deal agreed on by a certain percentage of investors is binding for all, thus removing any profit for hedge funds from holding out.   "The reality is it's happening. What we don't yet know exactly is what it looks like," a fourth source, close to the talks, said about the collective action clause introduction.   The source said the introduction of such clauses could be done quickly, from one week to the next, possibly in February.   Sources said a participation rate of two thirds of Greek private creditors would be enough as the rate required to impose the device, although a rate of 75 percent for example would be better.   A fifth source, also close to the talks, said lawyers were working on the retroactive introduction of CACs in Greek bonds. The International Monetary Fund, which is one of the institutional lenders to the Greek government under the first, 110 billion euro financing programme, also supported the introduction of CACs in its fifth review of Greece at the end of November.   "A next key step now under consideration is the inducement(s) to use to ensure near-universal participation (including the possible legislation of CACs in domestic law bonds)," the IMF review said. (Reuters) and........    http://www.athensnews.gr/portal/11/52215 Further support needed?   Speculation has centred on whether that means eurozone governments would be forced to stump up more cash for Greece, something that would be deeply unpopular in Germany and other northern eurozone countries.   IMF chief Christine Lagarde is also said to have warned Europe that the country’s economic prospects are deteriorating and the European Union will either have to put up more money to rescue Athens or debt holders will have to stomach steeper losses.   Asked to explain why Lagarde was discussing the possibility of Greece needing additional funds, Deputy Finance Minister Filippos Sachinidis said that could depend on the level of participation in the bond swap scheme.   "If the percentage of participation is not, for instance, 100 percent, then Greece may need further support from the side of our partners," Sachinidis told Skai radio.   The talks cover the gamut of details, including the coupon rate, maturities and the option of introducing a collective action clause (CAC) that would force all creditors to sign up to the bond swap if a clear majority had voluntarily done so.   Three senior eurozone sources said on Thursday that Athens could impose retroactive collective action clauses to force creditors to sign up to the bond swap.   The clause may be required because sources say hedge funds that have picked up Greek debt are intent on staying out of the bond swap deal. They either prefer letting the country go under, which would trigger the credit insurance they have bought, or hope to get paid out in full if enough others sign up.   Sachinidis sidestepped a question on whether Greece would insert or activate a collective action clause. "Let's not jump ahead and let's see how we can seal the technical agreement in such a way that it ensures two things," he said.   "First, a high participation rate and a voluntary participation in the bond swap programme and secondly, that Greek debt ends up with characteristics that allow analysts monitoring and examining its viability to conclude that after this procedure it is sustainable." (Reuters)