Of Special Interest


[x] [x]

2nd March 2012

No payout on Greek CDS - official - challenge possible

The International Swaps and Derivatives Association EMEA Determinations Committee voted unanimously that no credit event had occurred in relation to Greek government bonds. The effect is that those organisations prudent enough to hedge their Greek bonds with Credit Default Swaps will not be paid out.

There is absolutely no surprise by anyone by the decision. Core to the Eurozone member countries bailout of Greece was the determination to avoid a credit event because no one is sure how this could be managed exactly.

The matter can be referred back to the committee under certain circumstances. Whilst the Eurozone countries can lean on their own banks to accept the so-called voluntary writedown of Greek debt there are other holders of Greek debt less pliable. In particular there is the possibility of a claim for a 'restructuring credit event'. This is defined as an event where "a reduction in the amount of principal or premium payable at maturity or at scheduled redemption dates" occurs. The distinction claimed to date is that the reduction has been a voluntary one and therefore does not fall into this category. Renegades may claim it was not voluntary at all. CDS rules vary as to the level of part payment that would stop their need to pay out.