A restructuring of Greek debt under the second bailout does not lead to a "credit event" and hence, does not require default insurance payment, the International Swaps and Derivatives Association (ISDA) said on Thursday.
In its ruling on two questions pertaining to a potential credit event linked to Greece, the London-based ISDA's EMEA Determinations Committee "unanimously determined that a Restructuring Credit Event has not occurred."
The ruling prevents private creditors from claiming Credit Default Swap (CDS) insurance totaling EUR 3.25 billion against a Greek default. CDSs contracts protect investors against non-payment of unsecured debt.
The first question asked whether the holders of Greek law bonds had been subordinated to the European Central Bank and certain national central banks whose bonds were acquired by Greece prior to the implementation of new Greek legislation and if such subordination constitutes a Restructuring Credit Event.
It was also asked whether the deal agreed by Greece and private sector investors would constitute a Restructuring Credit Event. The deal includes a nominal haircut of 53.5% to the face value of Greek Government Bonds. The government also intends to introduce collective action clauses(CACs) into those GGBs governed by Greek law.
The ISDA committee said it had not received any evidence of an agreement that would result in a credit event.
However, the ISDA said, "The situation in the Hellenic Republic is still evolving." The over-the-counter derivatives trade body also said today's decisions are not "an expression of the EMEA DC's view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light."
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