JohnQPublic
22nd January 2012, 11:26 AM
Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default World (http://www.zerohedge.com/news/subordination-101-walkthru-sovereign-bond-markets-post-greek-default-world?page=1)
An important read. Very complicated though.
What I got out of it- ~90% of Greek debt is covered under Greek law, and has no Collective Action Clause (CAC, meaning there is no agreement that X%, say 66 or 75, of bondholders can by agreement change the terms for 100%).
On the other hand ~10% falls under UK law, and has a 66% CAC.
Now it is hypothesized that Greece can retroactively create a CAC for its local law bonds (with a penalty of loss of future confidence, etc.), and thus force say a 66% agreement. But, this will not effect the 10% under UK law.
The gist is that hedge funds are buying up the UK bonds with hopes to hold 33%+1 share of the ~10% UK law bonds, so they can thus use this ~3% of total Greek bonds to block any general agreement, and control the negotiations to there benefit.
The article discusses some workarounds, possible role of the ECB, other hedge fund strategies (such as post default lawsuits), etc.
An important read. Very complicated though.
What I got out of it- ~90% of Greek debt is covered under Greek law, and has no Collective Action Clause (CAC, meaning there is no agreement that X%, say 66 or 75, of bondholders can by agreement change the terms for 100%).
On the other hand ~10% falls under UK law, and has a 66% CAC.
Now it is hypothesized that Greece can retroactively create a CAC for its local law bonds (with a penalty of loss of future confidence, etc.), and thus force say a 66% agreement. But, this will not effect the 10% under UK law.
The gist is that hedge funds are buying up the UK bonds with hopes to hold 33%+1 share of the ~10% UK law bonds, so they can thus use this ~3% of total Greek bonds to block any general agreement, and control the negotiations to there benefit.
The article discusses some workarounds, possible role of the ECB, other hedge fund strategies (such as post default lawsuits), etc.