The Eight Hundred Pound Greek Gorilla Enters The Room

The Eight Hundred Pound Greek Gorilla Enters The Room (ZeroHedge, Mar 10, 2012):

“After an increase of only 3% in the second half of 2010, total notional amounts outstanding of over-the-counter (OTC) derivatives rose by 18% in the first half of 2011, reaching $708 trillion by the end of June 2011. Notional amounts outstanding of credit default swaps (CDS) grew by 8%, while outstanding equity-linked contracts went up by 21%.”

-The Bank for International Settlements, Nov. 2011

The Rub

We all have been staring at the Greek sovereign debt and then the Greek CDS contracts. It was 1/13/10 when I first predicted that Greece would default and what a long and winding road it has been; similar to some hallucinogenic experience manufactured by Timothy Leary. Sometime soon, given what has taken place, I expect the ratings agencies to place Greece in “Default” and with their banks following. The markets are “Ho-Humming” and the conversations revolves around “Net” CDS exposure and the write-downs that have already taken place at the European banks. Please recall AIG and what happened with Lehman and what do we find this morning; KA Finanz, the Austrian bad bank, faces $1.32 billion in losses due to their exposure to the Greek CDS contracts according to a Bloomberg article. So now we will wait and see who else is on the hook, who may be seriously impaired, because the Gross number of about $79 billion for Greek CDS is about to enter center stage.

It Gets Far Worse

I hold up my hand, “One moment please” as I introduce you to the 800 pound Greek Gorilla that is about to enter the room. Allow me to now present to you the “OTHER” Greek debt that is outstanding and will have to be accounted for as the country defaults. Detailed below are some of the “OTHER” sovereign obligations of the Greek government which have now been submitted to the ISDA and I list some of them below. You will note that there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact is now clearly fiction and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies.  This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench [ZH note: there is a reason why Allen & Overy is getting paid $1500 an hour to indemnify ISDA with a plethora of exculpation clauses – they know what is coming] The ISDN numbers are on all of these securities and the lead managers may be found on Bloomberg or other sources as well as the holders of the debt.  The curtain just lifted and the show is about to get way too interesting!

The full ISDA list may be found here:

One example of the problems forthcoming I present from a deal done by Goldman Sachs ISDN XS0292467775 $1.6 Billion Hellenic Republic 2.085 7/15/57 (Offering Memorandum)


The Notes constitute direct, general, unconditional, unsubordinated and, subject to this Condition, unsecured obligations of the Republic. The Notes rank pari passu with all other unsecured and unsubordinated obligations of the Republic outstanding on 30 March 2007 or issued thereafter without any preference granted by the Republic to one above the other by reason of priority of date of issue, currency of payment, or otherwise. The due and punctual payment of the Notes and the performance of the obligations of the Republic with respect thereto is backed by the full faith and credit of the Republic. So long as any Note remains outstanding, the Republic shall not create or permit to subsist any mortgage, pledge, lien or charge upon any of its present or future revenues, properties or assets to secure any External Indebtedness, unless the Notes shall also be secured by such mortgage, pledge, lien or charge equally and rateably with such External Indebtedness or by such other security as may be approved by an Extraordinary Resolution of the Noteholders (as described in Condition 10).”

I ask; how does this square away with the ECB and the EIB securing for themselves a senior position to other Greek bondholders?


If any of the following events (each an “Event of Default”) occurs:

(a) the Republic defaults in any payment of interest in respect of any of the Notes or Coupons and such default is not cured by payment thereof within 30 days from the due date for such payment; or

(b) the Republic is in default in the performance of any other covenant, condition or provision set out in the Notes and continues to be in default for 30 days after written notice thereof shall have been given to the Republic by the holder of any Note; or (c) in respect of any other External Indebtedness in an amount equal to or exceeding U.S.$25,000,000 (or its equivalent), (i) such indebtedness is accelerated so that it becomes due and payable prior to the stated maturity thereof as a result of a default thereunder and such acceleration has not been rescinded or annulled or (ii) any payment obligation under such indebtedness is not paid as and when due and the applicable grace period, if any, has lapsed and such non-payment has not been cured;


(d) a general moratorium is declared by the Republic or the Bank of Greece in respect of its External Indebtedness or the Republic or the Bank of Greece announces its inability to pay its External Indebtedness as it matures; or

(e) any government order, decree or enactment shall be made whereby the Republic is prevented from observing and performing in full its obligations contained in the Notes, then the holders for the time being of at least 25 per cent. of the aggregate principal amount of the outstanding Notes may (i) give notice in writing to the Republic and to the Agent in accordance with Condition 11 that such Notes are immediately due and payable at their principal amount together with accrued interest (if any) or (ii) decide at a meeting that such Notes are immediately due and payable, whereupon such Notes shall become immediately due and payable at their principal amount together with accrued  interest (if any) and/or (iii) decide at a meeting that, if the case may be, litigation be instituted. The holders of at least 66 2/3 per cent. of the aggregate principal amount of the Notes (at the time being outstanding) may rescind (i) such notice of acceleration (ii) such decision to accelerate or (iii) such decision to institute litigation if the event or events of default giving rise to the declaration or to the decisions have been cured or waived. Such rescission shall be made by giving notice in writing to the Republic and to the Agent whereupon such declaration or decision shall be rescinded and have no further effect. No such rescission shall affect any other or any subsequent Event of Default or any right of any Noteholder in relation thereto. Such rescission will be conclusive and binding on all holders of the Notes.”

You will note that by not paying the full amount to the Greek bondholders that a “general moratorium was declared” and that these “Notes shall become immediately due and payable at their principal amount together with accrued interest”

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