between Greece and its private creditors still unresolved and a
Greek default likely, private practice and in-house are equally
concerned about the prospect of a law that would force
bondholders into a debt exchange.
one in-house at an international bank, the real issue behind
the forced legislation is the fact that Athens is now in a
position to bring it in.
They couldnt do the law if it
was an English law contract, he said. Having
somewhere like Greece, which is a peripheral country, issue
that level of debt domestically was a big mistake for the
market. I think people appreciate that now.
Argentina was restructured, 90% of the nations debt was
under English, US or German law.
a whole new ball game, added the in-house. I think
the whole eurocrisis has made people focus a lot more on
90% of the
Greek debt is issued under domestic law. This is the reason
that bondholders are now susceptible to the Greek courts and
local Greek legislation.
its advisers, Lazards and Cleary Gottlieb, are considering
introducing legislation to insert collective action clauses
into the nations debt documents. These clauses would be
applied on a retroactive basis to alter the terms of existing
creditors now holding out, the insertion of a collective action
clause means they would be dragged along with the other
creditors in accepting the restructuring deal and receiving
less money than they were originally owed.
is threatening to change the rules while the game is being
played, said Jonathan
Henes of Kirkland & Ellis in New York. That
doesnt create a great deal of stability in the
didnt want to countenance the possibility of a retrograde
collective action clause. Its too awful to think
about, he said.
believes Athens decision to pursue a forced bond swap
could set a dangerous precedent for other eurozone
As Europe continues its economic decline,
we may start seeing other countries unable to pay off or
rollover their debts and other restructurings may start,
he said. I think what were watching is a microcosm
of what may happen on a macro level.
predicts a shift in investor behaviour if Greece retroactively
included collective action clauses. Youll see
investors start to factor this into their calculations:
theyre all going to assume that these collective action
clauses are in the agreements whether they really are or
not, he said.
lawyers IFLR spoke to agree that even if the hedge funds, a
significant creditor group, try to take Greece to the European
Court of Human Rights to challenge this law, it is difficult to
sue a sovereign. Remedies against Greece would be
difficult even assuming, however unlikely, that a disgruntled
investor could win, said Henes.
If a deal
emerges to reduce the average coupon on a benchmark 30-year
bond, there will be no need for this law. If it doesnt,
the stage is set for a showdown between bondholders and
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