Friday, March 9, 2012

ISDA: Greek Debt Restructuring Triggers CDS Payouts

Wall Street Journal
March 9, 2012

Payouts on a net $3.2 billion of insurance-like contracts designed to protect against losses on Greek sovereign debt have been triggered, after the country forced certain private creditors into its debt restructuring who did not want to accept the terms of the deal, a committee of dealers and investors decided Friday.

The request made early Friday to the special committee of the International Swaps and Derivatives Association, which rules on such matters for the credit-default swaps market, was made following Greece's use of so-called collective-action clauses in its domestic-law bonds.

Collective-action clauses were inserted into the bonds' documentation retroactively, after Greece passed a law last month allowing it to strong-arm all private investors into its restructuring—even investors who said they weren't willing to participate.

That action made the deal, which was billed as voluntary because of the many participants who did sign up, not truly voluntary for all. If a debt restructuring is agreed between "a governmental authority and a sufficient number of holders of such obligation to bind all holders," making it mandatory, CDS can be triggered, according to ISDA's credit derivatives definitions.


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