ISDA: We Can’t Tell You If The Greek Bond Swap Will Trigger A Credit Event Yet
The International Swaps and Derivatives Association — responsible for determining when a credit event (that would trigger credit default swap payouts) occurs — just updated its Q&A on Greek sovereign debt to account for the newest changes to the private sector bond swap discussed last night.
Their prognosis? If the swap is indeed voluntary, then there won’t be a credit event, even with haircuts of 50%.
But the likelihood that most bondholders will agree to those kinds of losses without significant coersion is slim. Numbers on participation when that haircut was just 21% were at best around 85%, under the 90% Greece demanded.
The ISDA says it can’t make a final decision on whether or not there will be a credit event until a formal decision is made:
UPDATE OCTOBER 27: The determination of whether the Eurozone deal with regard to Greece is a credit event under CDS documentation will be made by ISDA’s EMEA Determinations Committee when the proposal is formally signed, and if a market participant requests a ruling from the DC. Based on what we know it appears from preliminary news reports that the bond restructuring is voluntary and not binding on all bondholders. As such, it does not appear to be likely that the restructuring will trigger payments under existing CDS contracts. In addition, it is important to note that the restructuring proposal is not yet at the stage at which the ISDA Determinations Committee would be likely to accept a request to determine whether a credit event has occurred.
Read their full Q&A on Greek sovereign debt here.
- How gross and net CDS notionals really work (ftalphaville.ft.com)
- Credit Event Or No Credit Event, This Will Get Messy (zerohedge.com)
- Barclays Explains Why A 50% Greek Haircut “Would Be Considered A Credit Event, Consequently Triggering CDS Contracts” (zerohedge.com)
- So. Many. Bailout questions (ftalphaville.ft.com)
- Farce Is Complete As ISDA Finds 50% “Haircut” Is Not A Credit Event (zerohedge.com)
- Who wants to be a Greek bond holdout? (ftalphaville.ft.com)
Posted on October 27, 2011, in Greece, Money Game and tagged Bond, Credit default swap, Credit Default Swaps, Credit event, Euro bank crisis, Euro Crisis, Eurozone, Government debt, Greece, International Swaps and Derivatives Association, Money Game. Bookmark the permalink. Comments Off on ISDA: We Can’t Tell You If The Greek Bond Swap Will Trigger A Credit Event Yet.