ISDA determines Credit Event occurred in Greece

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The EMEA Determinations Committee of the International Swaps and Derivatives Association (ISDA) met on Friday last week (9 March) to discuss the Greek debt swap deal and to determine whether the deal amounts to a “Restructuring Credit Event”, thus triggering settlement under credit default swaps (CDS) referencing the Greek sovereign. The Determinations Committee decided that a “Restructuring Credit Event” has occurred. The decision was based on the invoking by Greece of collective action clauses (“CACs”) to force all holders to accept the exchange offer for existing Greek bonds. The invoking of the clauses means that the “haircut” suffered by bondholders is not voluntary and falls within the definition of “Restructuring” in the 2003 ISDA Credit Derivatives Definitions.

The vast majority of CDS are documented using standard terms developed by ISDA. Since the introduction of new standard terms in 2009, these have provided for regional ISDA Determination Committees to make binding decisions on whether a Credit Event has occurred.

Earlier this year, the EMEA Determinations Committee was asked to decide whether the passage of a law in Greece inserting CACs in bonds issued by Greece and subject to Greek law had constituted a Restructuring Credit Event. The Determinations Committee determined unanimously on 1 March that the passing of the law did not constitute a Credit Event.

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