ISDA: Greek Bond Swap Triggered CDS Payments

Greece’s use of a collective action clause to force private creditors into a bond swap has triggered payments on default insurance contracts, according to the International Swaps and Derivatives Association.

Private creditors voluntarily tendered 85.8 percent of the 177 billion euros in bonds regulated by Greek law as part of a bond swap, but in order to boost participation, Greece used legislation that should raise participating to 95.7 percent, but in doing so, triggered credit default swap payments.

The ISDA’s ruling means a maximum of $3.17 billion of net outstanding Greek CDS contracts could be paid out, though the actual amount will likely be lower as bondholders participating in the swap won’t lose all of their original investment, only most. An auction procedure expected to take place in the coming weeks will determine the exact amount of the payouts

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