Greek credit event has occurred, CDS payments triggered : source ISDA

Was thinking to do the post in the morning but had enough evidence to share it now.
The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved unanimously that a Restructuring Credit Event has occurred with respect to The Hellenic Republic (Greece).

The EMEA DC resolved that a Restructuring Credit Event has occurred under Section 4.7(a) of the ISDA 2003 Credit Derivatives Definitions (as amended by the July 2009 Supplement) following the exercise by The Hellenic Republic of collective action clauses to amend the terms of Greek law governed bonds issued by The Hellenic Republic such that the right of all holders of the Affected Bonds to receive payments has been reduced. The details are available on ISDA website .

It means there will be a net $3.2bn pay-out on CDS contracts, according to the data warehouse Depository Trust & Clearing Corp, in a boost for the relatively new market in sovereign debt protection that could also benefit euro zone debt markets amid worries that a failure to trigger could have undermined an important hedging instrument for holding government bonds. ( source FT)

I am wondering some bondholders, after procrastinations, got paid more than the others, which is not fair. However, such arrangements are private and confidential. But if the Greek did it so, they must have been due to pay more than expected. So, IMF/EU’s cashflow projection for Greece should be slightly modified again, which the Greek would not care much.

3 thoughts on “Greek credit event has occurred, CDS payments triggered : source ISDA

  1. Want to comment about this and your earlier post on Greek CAC’s and CDS’s.

    I’ve been following (Reuters’ columnist) Felix Salmon whom IMHO has been a rare source of trustworthy information on this topic. He highlighted a couple of WSJ articles which talked of “passive coercion” and “active coercion”. The analogy I drew was that if someone holds a gun to your head asking for all your money and they don’t have to shoot you to exact your compliance it’s passive coercion, but if they must shoot it’s then active coercion! Vastly different from criminal law where I believe the intent to commit a crime is typically itself a crime.

    Aside from the coercion of the PSI creditors, consider for a moment the coercion of the Greek government by the ECB to screw (“haircut”) the PSI creditors and have their bonds exchanged without loss (in return for supporting the bailout), subordinating other creditors, before a final call on the bailout was made. I was interested that ratings agencies determined default well before ISDA would admit “credit event”, but at least the ISDA did the right thing in the end, and their stance is understandable as they must walk a middle ground (between suppliers and buyers of this insurance) in order for CDS’s to remain viable. Nonetheless, it shall be interesting to see the impact of this fiasco (retrospective incorporation of CAC’s) on longer term (>3yrs and not influenced by LTRO’s) Italian / Spanish / Portugese sovereign debt bonds going forward.

    On the bondholders and different payouts, my understanding is that the payout will be determined from an auction on the 16th of March, and that all affected would get the same (averaged?) return, then complemented by the CDS to bring it up to 100% of face value. Right? The only difference would be with Greek bonds under foreign law to which the CAC’s don’t apply, and thus they should be paid out in full.

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  2. Thanks for your thoughts Andrew, even I was wondering the stands of the rating agencies, any ways It was not new they fail to deliver during the sub-prime crisis too when the crap was rated AAA. Yes it is difficult to find the relevant source, I was following up with FT, Felix Salmon, Barry Ritholtz and ISDA which finally confirmed the credit event. It was more of a necessity for ISDA other wise instruments like swaps will not be able to fulfill there purpose .

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