A global body for contracts used as insurance against sovereign defaults, the ISDA, will say on Thursday if a deal to cut Greek debt justifies payouts that could upset financial markets.
The International Swaps and Derivatives Association said on Wednesday that it would take a position on policies known as credit default swaps (CDS) which might determine whether Greece has defaulted.
The ISDA was acting in response to a query from an unidentified private creditor, and the declaration of a so-called credit event might lead to the payout of billions of euros (dollars) in insurance against a Greek default. “A meeting will be held at 1100 GMT on Thursday, March 1 to determine whether a credit event has occurred,” its statement said.
If so, it could trigger payments of CDS which totalled about 3.2 billion euros ($4.3 billion) as of February 10, essentially putting Athens in default.
Greece has reached a deal with private creditors to cut the value of the debt they hold by about 107 billion euros, which would substantially reduce overall Greek debt of 350 billion euros. Athens and European Union officials are trying meanwhile to avoid Greece having officially to declare a debt default, which would be a first for the 17-nation eurozone. In the case of sovereign debt, three situations generally qualify as a credit event.
The first is being unable to reimburse loans on the date they are due. The second is a challenge by debitors to the validity of their commitments, while the third is their unilateral modification of repayment terms. Greece has struck a deal with private creditors whereby they are to voluntarily accept reimbursement of about half of the money due them, which the ISDA has said would not qualify as a credit event.
In practice, Athens plans to provide creditors with new bonds worth 53.5 percent less than those currently held.
Greek officials have said that if necessary, they might also try to trigger a Collective Action Clause which would force creditors that did not want to swap debt to do so.
The three biggest international ratings agencies have already said they would consider the Greek bond exchange a partial default, because some of the country’s debt would be erases.
Standard and Poor’s said late Monday that it considered Greece to now be in selective default as a result of the debt cut agreement, but added that the country’s rating would probably rise again once a bond swap was completed. That is expected around March 12.
London, Feb 29, 2012 (AFP)
