Bloomberg News

Credit Swaps Panel Asked If Greek Parliament Triggered Payouts

February 27, 2012

A committee of banks and investors that governs credit-default swaps was asked to rule whether Greece’s parliament triggered payouts on contracts that protect against losses on the country’s debt.

The International Swaps and Derivatives Association’s determinations committee was asked whether a so-called restructuring credit event was caused by publication today of legislation that the Greek parliament passed as part of its agreement to exchange bonds for new securities, the trade group said on its website.

The restructuring, in which bondholders take a 53.5 percent reduction in the value of their investments, uses collective action clauses to discourage holdouts. The use of such clauses would trigger swap contracts, according to ISDA rules.

The committee is being asked whether the contracts have already been triggered because the deal gives the European Central bank and national central banks “a change in the ranking in priority of payment” by allowing them to exchange out of their eligible debt prior to the collective-action clauses taking effect, according to the ISDA website. The committee will decide whether to accept the question by Feb. 29, ISDA said in a statement today.

Greece negotiated the biggest debt restructuring in history as it seeks to reduce national debt to about 120 percent of gross domestic product by 2020, from 160 percent last year, and to meet the terms of a 130 billion-euro ($170 billion) international bailout. The debt swap will slice 100 billion euros off more than 200 billion euros of privately held debt if all investors participate.

Banks, hedge funds and other money managers had bought and sold credit swaps on a net $3.2 billion of Greek obligations as of Feb. 17, according to the Depository Trust & Clearing Corp., which runs a central repository for the market. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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