CACs – Explanatory Notes

The Introduction of Collective Action Clauses

As from 1st January 2013, in accordance with Paragraph 3 of Article 12 of the ESM Treaty, all euro zone countries shall incorporate Collective Action Clauses (CACs) in all new Euro Area government securities with maturity above one year.

The introduction of CACs in Euro Area Member states emanates from the announcement by euro area finance ministers back on 28 November 2010 which amongst a number of policy measures intended to safeguard the financial stability in the euro area, agreed on the mandatory inclusion of standardised Collective Action Clauses (CACs) in all new euro area government securities.

This commitment was later confirmed by the Heads of Government and States of euro area Member States at their meeting on 11th March 2011 and by the European Council at the summit held on 24th-25th March 2011. In this regard, a standardised and identical model of collective action clauses was developed and agreed by the Economic and Financial Committee (EFC) on 18th November 2011.

The objective of CACs will be to facilitate agreement between the sovereign and its private-sector creditors to the possible modification of euro area government debt securities that contain a standardised CAC, such that they allow a majority of bondholders to re-contract sovereign debt without a minority of stockholders obstructing the process. The standardised European model CACs can be found on the EFC’s website. These documents have been translated in Maltese language and can be accessed hereunder.

The CACs distinguish between two (2) types of modifications in the conditions of borrowing,

(a) Reserve matter modifications and (b) non-Reserve matter modifications. Such modifications are subject to the approval of the majority of the stockholders in a bondholder meeting convened by the Issuer or by a written resolution. Appropriate quorum requirements will apply. Different thresholds apply to each type of modification (reserve and non-reserve). The most important issues (reserve matter) will be decided with a larger majority than non-reserve matters.

A reserved matter modification involves the modification of the bond’s most important terms and conditions, including the reduction in the principal or interest payable on the Stock, change in the date when the interest or redemption is due or change in the definition of a reserved matter. These modifications require the highest level of Stockholders consent of an affirmative vote of not less than 75% of the aggregate principal outstanding Stock represented at duly convened meeting or not less than 66 2/3% of the aggregate principal amount of the outstanding stock in the case of written resolution.

A non reserved matter modification, involves a modification of less important terms and conditions that does not constitute a reserved matter. These modifications shall require the affirmative vote of stockholders of more than 50% of the aggregate principal amount of the outstanding stock represented at a meeting duly convened, or of more than 50% of the aggregate principal amount of the outstanding stock in the case of written resolution.

Under the CAC, a modification may be proposed in relation to either a single bond, a so-called single-series modification, or more than one Stock at the same time, a so-called cross-series modification.

In all events, a proposed modification shall require the consent of the Issuer and if approved, shall be binding on all stockholders.

The Accountant General shall publish, without undue delay, all notices and other matters required to be published pursuant to Stockholders Meetings and Written Resolutions:

(i) on the Treasury’s website;
(ii) through the Malta Stock Exchange; and
(iii) Malta Government Gazette.

The jurisdiction of the standardised European model CACs lies within the national courts. ​​​​​