Shouldn't coercion and intimidation trigger a credit event?This threat shows the debt swap isn't voluntary.Venizelos threatens defaultVenizelos: We are ready to activate CACsGreek Finance Minister Evangelos Venizelos warned Athens΄ private creditors on Monday not to hold out but take the bond swap on which a second bailout of the debt-ridden country depends because it was the best deal they would get.Venizelos told Reuters in an interview three days before the exchange offer expires, that the terms hammered out last month after months of tortuous negotiations were favourable and Greece would not hesitate to activate laws forcing losses on bond holders who did not willingly sign up."Whoever thinks that they will hold out and be paid in full, is mistaken," he said. "We are ready to activate CACs (collective action clause to enforce losses) if needed," he said.The deal clinched by euro zone finance ministers in the early hours of February 21 involves investors taking a nominal 53.5 percent loss, which equates to a real 73-74 percent loss, on their Greek bonds in a deal aimed at rescuing Greece from a chaotic default by cutting its debt mountain by around 100 billion euros.Venizelos said he was optimistic participation would be over 90 percent, with investors lured by the sweeteners offered - a cash equivalent upfront payment, a new bond issued under English law, a GDP warrant offering higher interest if the Greek economy does better than expected and equal treatment for the new bonds with the public sector."Our target is near universal participation," he said. "No one should imagine that there will be a second offer that will include these elements."Venizelos said participation was impossible to gauge right now but investors should be putting in their responses by Wednesday.Greece has said it wants 90 percent take up. If it falls below that but exceeds 75 percent, it will consult with its EU and IMF partners on how to fill the gap, with or without activating CACs. Below that level, the deal would be off, potentially plunging the euro zone back into crisis.A group of the biggest holders of Greek government debt said on Monday they would take part. Twelve banks, insurers, asset managers and hedge funds in the steering committee of bank lobby group IIF, which helped negotiation the bond swap deal, said in a statement they would take part in the exchange.They include BNP Paribas, Deutsche Bank, National Bank of Greece, Allianz and Greylock Capital Management.

Indeed!IF NPV(swapped bonds) < NPV(original bonds) THEN Debtor = DefaultedAnd the fact that the ECB isn't participating in the swap is even more egregious.

http://www.cnbc.com/id/46650489Athens Issues Threat to Bond Holdouts Greece has threatened to default on any of its bondholders who do not take part in a 206 billion euros debt restructuring that officials believe is key to returning Athens to solvency, a move that turns up the heat on potential holdouts ahead of a deadline on Thursday.he Greek public debt management agency said in a statement Athens ?does not contemplate the availability of funds? to pay private investors who hold on to their bonds once the restructuring occurs. The transaction is projected to wipe 100 billion euros from Greece?s debt pile, but 95 percent of bondholders must participate for that target to be reached.?There is no commitment not to pay, but there is a threat,? said Charles Blitzer, a former senior IMF official. ?If you don?t maximise participation, you?re asking for more stress in the programme or more [bailout] money from the official sector.?The threat is particularly aimed at 14 percent of investors who own Greek bonds issued under international law. The remaining 86 percent, who own 177 billion euros in Greek-law bonds, were also warned that Athens would use new legal provisions, called collective action clauses, to force the deal on holdouts. That would almost certainly trigger credit default swaps, a form of insurance that could prove more lucrative for some holdouts but could lead to renewed market uncertainty.A Greek debt restructuring would mark the first time in more than 60 years an advanced economy has defaulted on its obligations and would be a new nadir in the two-year long euro zone crisis.People close to the restructuring, which will occur when investors trade in their current bond holdings for new debt with about half the face value, described the statement as aggressive. ?It?s a tactical move intended to ratchet up the pressure on bondholders who may be wavering,? one said. ?The idea is that the higher the overall participation rate, the weaker the case will be for future litigation by holdouts.?Many of the potential holdouts in the international law bonds are hedge funds who bought on the hope of being paid back in full while investors with Greek-law securities would accept long-term losses of about 75 percent.?They will be portrayed as evil hedge funds and nobody will have any pity for them. They need to realise that they don?t have a free option here,? another person close to the deal said.The offer closes Thursday and the CACs could be triggered on Friday; the new bonds investors will get in the swap are due to start trading on Monday.European and US shares suffered their worst day of the year on the news, although one market that was up was Athens where equities rose by more than 4 percent. Italian and Spanish benchmark bond yields both moved above 5 percent again. ---------------------------------------------Still, the Banking Cartel (ISDA) want to treat Greece as a non-credit event!?

One has to imagine that most of the holdouts are only using their bond positions to force Greece into a CAC which will then make their CDS pay off. It will be very interesting to see what protection is owned by whom if/when a credit event is declared. And the political fallout could be a whole lot of fun...

If somebody misses a coupon, that is a default. I am not in the business, but life is too short to learn any examples more complicated than that.

QuoteOriginally posted by: crmorcomOne has to imagine that most of the holdouts are only using their bond positions to force Greece into a CAC which will then make their CDS pay off. By this stage, yes I agree. Which makes the Greek finance minister's rhetoric ridiculous. He's trying to threaten them with exactly what they want. What the Greeks should really do is sell CDS protection to the tune of a trillion, swap the bonds for the 90% "voluntarily" accepting the writedown, then refund the rest in full avoiding any credit events! Problem solved.

QuoteOriginally posted by: MattFQuoteOriginally posted by: crmorcomOne has to imagine that most of the holdouts are only using their bond positions to force Greece into a CAC which will then make their CDS pay off. By this stage, yes I agree. Which makes the Greek finance minister's rhetoric ridiculous. He's trying to threaten them with exactly what they want. What the Greeks should really do is sell CDS protection to the tune of a trillion, swap the bonds for the 90% "voluntarily" accepting the writedown, then refund the rest in full avoiding any credit events! Problem solved.I don't think I agree. All V. wants is to remove as much debt as possible. I suspect he doesn't care if CDS are triggered. The people who are more scared about the CDS trigger are the Greeks and the French, whose banks are probably exposed in complex, untransparent, and likely toxic ways. The CDS trigger allows V to beat up the troika in a way that they can't object to since the debt-swap was mostly their idea. This gets him good giggles and better bail-out terms.Mind you, I will chuckle if, when CDS are triggered, the Greek government turns out to have large positions...

QuoteOriginally posted by: farmerIf somebody misses a coupon, that is a default. I am not in the business, but life is too short to learn any examples more complicated than that.Not exactly.A credit event depends on the definition of each CDS contract.There are six standard credit events in the ISDA Credit Derivatives Definitions:1. Bankruptcy2. Obligation Acceleration3. Obligation Default4. Failure to Pay5. Repudiation/Moratorium 6. Restructuring Restructuring concerns situations where the terms of the relevant obligation are modified and become less favourable to the obligation holders. Typical examples are a reduction in the principal amount, a decrease of interest payable under the obligation, a postponement of payment, a change in ranking in priority of payment or any other composition of payment. A defaultthreshold amount may be specified. The wording of this definition aims at identifying specific events that are typical elements of a restructuring of indebtedness. However, a restructuring event would not to occur in circumstances where the relevant event does not result in a deterioration of the creditworthiness or financial condition of the reference entity.I guess it will depend on the clauses written on each CDS contract.

QuoteOriginally posted by: crmorcomOne has to imagine that most of the holdouts are only using their bond positions to force Greece into a CAC which will then make their CDS pay off. It will be very interesting to see what protection is owned by whom if/when a credit event is declared. And the political fallout could be a whole lot of fun...I guess some of the holdouts are buyers of protection but some small holders may also have some exposure.Since the Big Banks are all going to participate in the PSI I guess they're also the Sellers of Protection. They had double exposure to Greece (Bonds and Sellers of protection)? That will hurt when the credit event is triggered! This could be a nice explanation for why the Banking Cartel isn't allowing the Credit Event to be triggered (The "Major" Banks bought bonds and sold protection hence increasing their exposure to Greece). If CDS on Greece were written with the usual restructuring clause then the CDS should be triggered soon.

This is not a voluntary debt pardoning! I think CDS contracts on Greece will soon be triggered. We'll see which Banks will take the damage.Greece Creditors Forced To Take Haircuts TOKYO (Dow Jones)--The euro fell against the dollar and yen in late Asian trading Friday following an announcement that 85.8% of Greece's private sector creditors will participate in a massive debt swap deal, below the 90% threshold that would have spared reluctant creditors from being forced to take part. Greek authorities said that 85.8% of the country's private sector creditors agreed to give up half of the face value of their existing bonds in the EUR206 billion swap deal, with that figure boosted to 95.7% after collective action clauses are activated to force other creditors to participate. The debt swap will reduce the country's huge borrowings, marking a key moment in Europe's efforts to tackle its debt crisis.Although the results were broadly in line with expectations and followed a day of euro gains on optimism over the debt swap, traders said that some market players sold the euro when it became clear that participation rate was not over 90%.The debt swap will likely trigger credit default swaps. The International Swaps and Derivatives Association said it has already received a question on whether Greece has suffered a "credit event" and will meet at 1300 GMT to rule on the matter.Greece must consult with its euro-zone rescuers on legal maneuvers to force reluctant creditors to take part--a teleconference of euro-zone finance ministers is scheduled for 1300 GMT."Earlier in the day, some had hoped for higher rates that would allow Greece not to use the collective action clauses," said Tomohiro Nishida, senior dealer at Chuo Mitsui Trust and Banking, adding some investors were also "selling on the fact" after the result.

QuoteOriginally posted by: Traden4AlphaIndeed!IF NPV(swapped bonds) < NPV(original bonds) THEN Debtor = DefaultedAnd the fact that the ECB isn't participating in the swap is even more egregious.The NPV of the original bonds are their latest market price by definition.

QuoteOriginally posted by: AnthisQuoteOriginally posted by: Traden4AlphaIndeed!IF NPV(swapped bonds) < NPV(original bonds) THEN Debtor = DefaultedAnd the fact that the ECB isn't participating in the swap is even more egregious.The NPV of the original bonds are their latest market price by definition.Hmmm... I would say that the market price is the marginal market participants' estimate of the NPV. Other people might have other estimates of NPV. And "held to-maturity" bonds have a value independent of the current market price.By definition, default means the borrower has failed to live up to the terms of the contract to make certain repayments of principal and interest. I should written:IF NPV(swapped bonds' contractual cashflows) < NPV(original bonds' contractual cashflows) THEN Debtor = Defaulted.Admittedly, there remains a fuzziness to the inequality due to questions of which risk-free rate one might use for the NPV calculation.

I consider the possibility that the people who bought these CDS aren't that bright.

People are saying in the news that the ISDA is going to declare a credit event but the it appears the net-exposure is residual. Maybe no one knows what the real exposure is. We'll see.Anyway, now We know that holding sovereign debt of a Eurozone country is a very "defaultable" investment. Who's next? Where will creditors loose a bunch of money on EUR-sovereign bonds and CDS contracts, next?Italy's Debt-to-GDP is around 120%; Portugal's already at 110% (it will be at 120% by the end of 2012). Who's the next EU Sovereign to lead Banks/Investors to massive losses? We'll probably see 3 to 5 credit events in the Eurozone in the next 5 years. Will the US and other Big Sovereigns follow, by 2020's, thus ending the risk-free myth? And what is the logic that the ECB follows when determining which Sovereigns should be bailed out and those who should default? Have they bought more Italian and Spanish than Greek/Portuguese debt? What are the criterion followed by the ECB on Bond Purchases and Bank bailouts?

QuoteOriginally posted by: BullBearWe'll probably see 3 to 5 credit events in the Eurozone in the next 5 years. Will the US and other Big Sovereigns follow, by 2020's, thus ending the risk-free myth? The US and other Big Sovereigns will surely just print more money to repay their debts. Fiat currencies can never be risk free other than in their own frame of reference.