by Matina Stevis and Katy Burne
Wall Street Journal
February 23, 2012
As Greece strives to restructure €207 billion worth of privately held debt, an urgent piece of legislation aimed at expediting the bond swap has left creditors — and their lawyers — anxious over its potentially far-reaching implications.
The bills, taken to the Greek parliament Tuesday and expected to be passed Thursday, will see investors forgive a steep 53.5% of the face value of Greek bonds and will retrofit the bonds’ supporting documents with new clauses to bind in holdout creditors who would otherwise resist that restructuring.
These so-called collective-action clauses, which impose the will of a majority of bondholders on the minority, are a common feature of many new bond contracts.
But in this case it is their retroactive nature that makes them unique — and controversial. It’s one thing for investors to know at the time of purchasing a bond that they could be forced to accept a restructuring against their wishes; it’s another to see the contracts on the bonds they already own amended unilaterally for that purpose.
This is what has made the Greek CACs such a flashpoint for debate among fixed income investors. It is also why some worry that Greece is setting a precedent that will cause investors to shun other euro-zone bonds, fomenting the very contagion risks that officials are eager to avoid.
If Greece introduces, then uses, the new CACs, it will almost certainly be deemed an act of coercion.