FT Alphaville " Now witness the firepower of this fully armed and operational collective action clause, etc Latest from the Greek finance ministry (its debt manager has met German banks): The Republic confirmed that if it receives sufficient consents to the proposed amendments of the Greek law governed bonds identified in the invitations for the amendments to become effective, it intends, in consultation with its official sector creditors, to declare the proposed amendments effective and binding on all holders of these bonds. Consequently, all obligations of the Republic to pay holders of those bonds any amount on account of principal will be amended to permit the Republic to discharge these obligations in full by delivering to the holders of the amended bonds on the settlement date the consideration described in the invitations. In addition, the Republic's obligation to pay interest on its Greek law governed bonds will be amended so as to reduce the amounts due to interest accrued through 24 February 2012 and to provide that such amounts will be paid by delivering short-term EFSF notes in lieu of cash. No further interest will accrue or be payable on those bonds. The Republic's representative explained that the Republic has fixed a delayed settlement date (11 April 2012) for the invitations made to foreign law governed Republic bonds and guaranteed bonds to comply with the notice provisions of those bonds and allow the holders to vote on the relevant proposed amendments prior to the delayed settlement date. Whether or not the proposed amendments to the foreign law governed bonds and guaranteed bonds are approved by the requisite majorities, the Republic intends to accept tenders of these bonds for exchange (assuming the conditions described in the invitations have been satisfied or waived). The Republic's representative noted that Greece's economic programme does not contemplate the availability of funds to make payments to private sector creditors that decline to participate in PSI. Finally, the Republic's representative noted that if PSI is not successfully completed, the official sector will not finance Greece's economic programme and Greece will need to restructure its debt (including guaranteed bonds governed by Greek law) on different terms that will not include co-financing, the delivery of EFSF notes, GDP-linked securities or the submission to English law. Think we can read the bolded bit as "swivel" to [Greek law only?] holdouts The first part makes plain that collective action clauses, which would let a majority of quorate bondholders bind others, will be triggered. There's been a lot of fuss about this, but it's worth remembering that the CACs now in Greek law bonds provide for a 50 per cent quorum within the 66 per cent threshold. That is it. The end. Also worth noting, it's likely that holders of Greek bonds who do want to participate in the swap will probably turf them over to custodians by Tuesday night, not Thursday's official deadline, because the bonds have to go through settlement systems. So can we focus on the new Greek bonds? One or two interesting things we'd like to know more about them: 1) Exit yields. Pop onto GDEX <Go> on Bloomberg and you can play around with discount rates on cashflows for the new bonds, thus deriving a "clean" price for them. Greece will pay off accrued interest on the old bonds as part of the deal. The page starts with a 12 per cent discount rate. But if you work backwards from the current prices of "old" Greek bonds (generally about 21 cents or less in the euro by now as the exchange gets priced in), some 17 -20 per cent yields for the new Greek bonds seem more appropriate. We'll reprise this JPMorgan chart from earlier which worked out a yield of 17 per cent compared to current Greek and Portuguese 30-year bonds: Our honest answer is who knows. The new Greek bonds could trade with yields of 12, 14, or 16 per cent after the swap depending on how a market develops. But, seems grim for debt sustainability if these yields do emerge post-restructuring. So our question is, who pays to fix that. After this bond swap, surely it would have to be official creditor write-downs. 2) CDS on the new Greek bonds. This might seem like jumping the gun a bit. For now, there is no evidence of CDS being quoted on new Greek bonds in advance of the swap (even though it might be technically feasible). But no doubt investors would want to trade them afterwards. The Greek finance ministry mentions above the later swap date for "old" foreign-law Greek bonds. So there'll be a period (however brief) when the two types of debt exist alongside each other. Our question here then is how the CDS market deals with that. Deliverables, the debt ranking pari passu, etc. We'd be interested in reader thoughts. Not that there might be a deliverables challenge in Greece CDS before then. Related links: IIF warns of one trillion euro cost of Greek default - FT Did your grandma buy Greece CDS or what? - FT Alphaville This entry was posted by Joseph Cotterill on Tuesday, March 6th, 2012 at 16:15 and is filed under Capital markets. Tagged with debt restructuring, Greece, Sovereign debt, Sovereign default.