REPEAT - DERIVATIVES: ISDA to determine Greece credit event on March 1
The International Swaps and Derivatives Association said it will hold a meeting on Thursday, March 1 at 11:00 a.m. GMT to determine whether a credit event occurred in respect to Greece. A general interest question was posed to ISDA’s EMEA Determinations Committee last week.
Collective action clauses (CACs) have been at the heart of determining whether a Greek credit event has occurred.
ISDA’s Determinations Committee was asked to determine if the passage of legislation by the Greek parliament that approves the implementation of an exchange offer and the vote providing for CACs that imposes a haircut amounting to 53.5% that binds the entirety of the bondholders constitute a restructuring credit event.
The query noted that the ECB and national central banks benefitted from a change in the ranking in priority of payment as a result of Greece exclusively offering them the ability to exchange out of their “eligible instruments” prior to the exchange and implementation of the CACs. This, the comment says, would effectively cause the subordination of all remaining holders of eligible instruments.
The passage results directly or indirectly from a deterioration in the creditworthiness or financial condition of Greece, the comment adds.
In January, ISDA said the activation of a CAC to effect a reduction in coupon or principal or one of the other events set out in the definition of the Restructuring Credit Event could trigger CDS if the other requirements of the Restructuring Credit Event were met, such as a decline in creditworthiness.
Greece instituted a retroactive insertion of CACs in certain series of its sovereign debt last week. Standard & Poor’s said the CACs cut bondholders’ bargaining power in a debt exchange.
Originally, Greece did not appear to be slated for a credit event. “Based on what we know from preliminary news reports, the eurozone proposal is voluntary and not binding on all bondholders. As such, it does not appear to be likely that the deal will trigger payments under existing CDS contracts,” said ISDA in a comment last October.
