An exit exchange in the shadow of a collective action clause (CAC) may be the best way of engineering an orderly Greek debt restructuring and avoiding triggering credit default swap (CDS) contracts.
A new paper by respected Duke University sovereign debt restructuring expert Mitu Gulati and Jeromin Zettelmeyer of the European Bank of Reconstruction and Development examined using just CACs and using a CAC plus an exit exchange.
They concluded that the best option for restructuring Greece’s domestic law-governed bonds was to combine a CAC and an exchange offer that wouldn’t actually invoke the CAC and trigger the CDS contracts, as opposed to the other two options.
“In other words, a CAC would be retrofitted and the use of the CAC would be explicitly or implicitly threatened but would not be...