How did the private sector come to alleviate the burden, and how was this done? What made this debt exchange transaction extraordinary? The PSI is the largest restructuring of sovereign debt to date. But it was not only this that made it unique. One of the most important features of the PSI was the constitution of a steering committee of creditors following the initiative of the Institute of International Finance (‘IIF’) and some of the largest European banks. The forming of steering committees of creditors was a practice that had been abandoned for several years in sovereign debt restructurings, but given the size of the PSI and the timeframe for its consummation, the private sector creditors decided to move forward with a committee. This committee, which was informally constituted, led the negotiations with Greece, which was undergoing an unprecedented financial and political crisis with riots in the streets on a daily basis and a coalition government with very narrow margins of tolerance by the electorate. Had this steering committee not existed, it is highly arguable whether the PSI would have been completed. Further, the PSI was structured as a voluntary and majority-based exchange. Although the vast majority of the GGBs was governed at the time by Greek law, which theoretically allowed Greece to simply pass a law imposing a haircut on its creditors, which itself would have exposed Greece to high risk of challenges both under the Greek Constitution and the European Convention on Human Rights, Greece opted for a consent solicitation and the retroactive introduction of collective action clauses in the Greek lawgoverned GGBs (‘CACs’). Under these CACs, all Greek law-governed GGBs (aggregating to approximately €172 billion of face value) were treated as one series, whilst quorum for accepting the exchange was set at 50% and majority at 2/3 of those tendering their GGBs. Non-Greek law-governed GGBs (of approximately €19.9 billion face value) and some bonds guaranteed by Greece (of approximately €6.7billion) that were invited in the PSI included their own CACs. This meant that the whole of the range of eligible bonds that were invited in the exchange included CACs, increasing the chances of success and reducing the legal risk for challenges. To avoid contagion risk, GGBs held by the public sector were excluded from the PSI. 31 December 2011 was set as the cut-off date for GGBs eligible for the PSI and so, shortly before its announcement, GGBs of approximately €43 billion face value held by the ECB and €13.5 billion held by national central banks were exchanged with newly issued GGBs with identical characteristics. In this way, public sector GGBs were not invited in the PSI. FEATURE OF THE MONTH 17
RkJQdWJsaXNoZXIy Mjk3Mzkz