World economy talk

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reminder lang Greece hasn't received bailout money yet

News Headlines

The German parliament will almost certainly vote to endorse a new Greek bailout package on Monday, but Chancellor Angela Merkel may be forced to rely on opposition support to overcome a determined band of rebels in her coalition.

At least a dozen members of parliament in Merkel's center-right coalition said they would vote against the 130 billion-euro ($175 billion) rescue package. If the number of rebels rises to at least 20, the measure will pass only with opposition support.

Deadline set for private holders of Greece

A DEADLINE of 8 March – next Thursday – has been set for private holders of Greek debt to participate in the proposed bond swap, required to significantly cut the struggling state’s debt burden.

The debt swap is a crucial part of Greece’s latest bailout, which is expected to see the Mediterranean country receive a €130bn (£110bn) rescue package in time to avoid defaulting on repayments due on 20 March.

Greece is hoping for 90% participation

below 75% participation there will be no deal

[Monseratto]

Selective Default...

ATHENS (Reuters) - Standard & Poor's on Monday cut Greece long-term ratings to 'selective deafault', the second ratings agency to proceed with a widely expected downgrade after the country announced a bond swap plan to lighten its debt burden.

S&P said that once the debt exchange is concluded, it will likely raise Greece's sovereign credit rating to the 'CCC' category.

"We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs)," the U.S. ratings agency said.

It said Greece's retroactive insertion of CACs -- which enforce losses on investors who do not voluntarily sign up to the offer -- changed the original terms of the affected debt and made the exchange a "distressed debt restructuring".

Greece formally launched the bond swap on Friday. Under the deal, bondholders are to take losses of 53.5 percent on the nominal value of their Greek bonds, with actual losses put at around 74 percent in real terms.

S&P's move follows that of Fitch, which last week cut Greece's long-term ratings to its lowest rating above a default as a result of the bond exchange plan.

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if not enough bondholders accept the offer there will be no bond swap

then Greece will default

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looks like somebody has brought up THE question with the ISDA (RE: Greece collective action clauses)

the question is -- do CACs cause a credit event?

http://www.isda.org/dc/fulldescripti...num=2012022401

Does the announcement of the passage by the Greek parliament of legislation that approves the implementation of an exchange offer and vote providing for collective action clauses (“CACs”) that impose a “haircut amounting to 53.5%” (MINFIN Announcement, 2.21.2012) that “shall bind the entirety of the Bondholders [of eligible instruments]” (First Article, Section 9), constitute a Restructuring Credit Event in accordance with Section 4.7 of the 2003 ISDA Credit Derivatives Definitions (as amended by the 2009 ISDA Credit Derivatives Determinations Committees, Auction Settlement and Restructuring Supplement to the 2003 ISDA Credit Derivatives Definitions, published on July 14, 2009) because (i) the European Central Bank and National Central Banks benefitted from “a change in the ranking in priority of payment” as a result of the Hellenic Republic exclusively offering them the ability to exchange out of their “eligible instruments” prior to the exchange and implementation of the CACs, thereby effectively “causing the Subordination” of all remaining holders of eligible instruments, and (ii) this announcement results directly or indirectly from a deterioration in the creditworthiness or financial condition of the Hellenic Republic?

the ISDA will think about it

ISDA - International Swaps and Derivatives Association, Inc.

February 27, 2012
NEWS STATEMENT
ISDA Determinations Committee: The Hellenic Republic
LONDON, February 27, 2012 – The International Swaps and Derivatives Association, Inc. (ISDA), as secretary to the Determinations Committees (the DCs), today announced that a question relating to the Hellenic Republic has been submitted to the EMEA Determinations Committee.

In accordance with the Determinations Committee process, the EMEA Determinations Committee will decide whether to accept the question for deliberation or reject it and this decision will be made by 5PM GMT on Wednesday, February 29, 2012.

[Monseratto]

Tomorrow will be interesting...

UPDATE: Market Participant Asks ISDA If Greek CDS Have Been Triggered - WSJ.com

NEW YORK (Dow Jones)--An unidentified market participant has asked a committee of the International Swaps and Derivatives Association to rule on whether the passage of legislation approving collective-action clauses for Greek debt should trigger payouts on credit-default swaps tied to Greek sovereign bonds.

At stake are payouts from sellers of a net $3.2 billion of CDS on Greece currently outstanding, and the stigma associated with lending credence to an instrument policymakers have long reviled.

ISDA said in a statement the Determinations Committee will decide by 5 p.m. GMT on Wednesday "whether to accept the question for deliberation or reject it." Only after the committee has opted to review the case would the committee then consider whether sellers of Greek CDS should pay buyers of the protection.

The anonymous request asks the ISDA committee to consider whether moves that could force private investors to forgive 53.5% of the face value of Greek debt, while the European Central Bank and national central banks got a better deal, constitutes mandatory subordination that should allow holders of CDS to collect compensation.

The ECB and national central banks "benefited from a change in the priority of payments as a result of the Hellenic Republic exclusively offering them the ability to exchange out of their eligible instruments prior to the exchange and [expected] implementation of" the collective-action clauses, the request reads.

Under the 2003 Credit Derivatives definitions published by ISDA, a change in the payment priority ranking of any obligation, causing its subordination, is one of the events in restructuring that can trigger CDS for payouts--as long as it results from a deterioration in creditworthiness.

The request comes before the formal bond exchange with private creditors has occurred, and just after the ECB participated its own beneficial bond swap, getting new Greek bonds that will not contain the collective action clause provision, thereby not taking losses.

If the ISDA committee decides not to take up the case, it would not have to say why. But as a result of the exchange with private creditors not yet having occurred, the ISDA committee may decide it is not the right time to consider the request, in favor of reviewing it after the exchange has occurred.

Despite this, an ISDA spokesman said the committee has a "very well-defined, well-tested and transparent process for determining if a credit event has occurred

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even if the ISDA rejects it tomorrow di pa naman tapos yung bond swap

the issue was brought up too early

wait after the bond swap

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the ISDA didnt reject it

ISDA - International Swaps and Derivatives Association, Inc.

LONDON, February 28, 2012 – The International Swaps and Derivatives Association, Inc. (ISDA), as secretary to the Determinations Committees (the DCs), today announced that a question relating to a potential credit event with respect to the Hellenic Republic has been submitted to, and subsequently accepted for consideration by, the EMEA Determinations Committee.

In accordance with the Determinations Committee Rules, a meeting will be held at 11AM GMT on Thursday, March 1 to determine whether a credit event has occurred.

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market waiting for result of second 3-yr LTRO

market expects banks borrow 500 billion euros

higher than 500B -- banks still need money badly. or they're taking advantage of cheap funding (use for carry trade)

lower than 500B -- banks are ok so don't need more money. balance sheets are ok. things are stable. make you wonder why they don't take advantage of cheap funding

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ECB: 20120034 all

Longer Term Refinancing Op.-Allotment

Reference Number: 20120034
Transaction Type: REVERSE_TRANSACTION
Operation Type: LIQUIDITY_PROVIDING
Procedure: STANDARD_TENDER
Tender Date: 29/02/2012 11:15:00
Start Date: 01/03/2012
Maturity Date: 26/02/2015
Duration (days): 1092
Auction Type: FIXED_RATE
Tot Amount Allotted: 529530.81 mn
Tot Bid Amount: 529530.81 mn
Tot Number of Bidders: 800

800 banks borrow total 529.5 billion euros

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now there are 2

somebody else asks the ISDA another question re Greece

http://www.isda.org/dc/fulldescripti...num=2012022901

Does (i) the agreement that has been reached between the Hellenic Republic and a number of private sector holders of Greek debt (the “PSI Agreement”) to vote in favour of the invitation described in the Invitation Memorandum dated 24 February 2012 by the Hellenic Republic to the holders of each series of securities listed in the Invitation Memorandum (the “Designated Securities”) to offer to exchange the Designated Securities for new securities (the “Invitation”); (ii) the enactment of Article First of Law No. 4050/2012 (Government Gazette A 36/2012), “Rules on the modification of titles issued or guaranteed by the Greek State with the Bondholders’ agreement” (the “CAC Law”) and (iii) the statement by the Ministry of Finance of the Hellenic Republic on 21 February 2012 that the CAC Law can be used together with the PSI Agreement to achieve participation in the offer described in the Invitation at the levels anticipated by the 26 October 2011 Euro Summit Statement, constitute a Restructuring Credit Event in accordance with Section 4.7 of the 2003 ISDA Credit Derivatives Definitions (as amended by the 2009 ISDA Credit Derivatives Determinations Committees, Auction Settlement and Restructuring Supplement to the 2003 ISDA Credit Derivatives Definitions, published on July 14, 2009) because (i) a reduction in the amount of principal or premium payable at maturity or at scheduled redemption dates of the Designated Securities has been agreed between the Hellenic Republic and a sufficient number of holders of the Designated Securities to bind all holders of the Designated Securities and (ii) this agreement results directly or indirectly from a deterioration in the creditworthiness or financial condition of the Hellenic Republic?

this one is different from the first. the first one asks if collective action clauses cause a credit event

this one asks if the reduction in the amount of principal cause a credit event

-------------

update:

the ISDA EMEA determinations committee

EMEA Determinations Committee Statement March 1, 2012

In light of today’s EMEA Determinations Committee (EMEA DC) unanimous decisions in respect of the two potential
Credit Event questions relating to the Hellenic Republic (DC Issue 2012022401 and DC issue 2012022901), the EMEA
DC has agreed to publish the following statement:

The first submitted question (DC Issue 2012022401) asked whether the holders of Greek law bonds had been
subordinated to the ECB and certain NCBs whose bonds were acquired by the Hellenic Republic prior to the
implementation of new Greek legislation such that such subordination constitutes a Restructuring Credit Event. (The
full text of the question is available here http://www.isda.org/dc/view.asp?issuenum=2012022401.)

The EMEA DC unanimously determined that the specific fact pattern referred to in the first submitted question does
not satisfy either limb of the definition of Subordination as set out in the ISDA 2003 Credit Derivatives Definitions
(the 2003 Definitions) and therefore a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003
Definitions.

The second submitted question (DC Issue 2012022901) asked whether there had been any agreement between the
Hellenic Republic and the holders of private Greek debt which constitutes a Restructuring Credit Event. (The full text
of the question is available here http://www.isda.org/dc/view.asp?issuenum=2012022901.)

The EMEA DC determined that it had not received any evidence of an agreement which meets the requirements of
Section 4.7(a) of the 2003 Definitions and therefore based on the facts available to it, the EMEA DC unanimously
determined that a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC
decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating
to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a
later date, in each case, as further facts come to light.

so both questions answered -- no credit event

but read last paragraph... still evolving... submit further questions...

questions were raised too early

wait after the bond swap then ask your questions