ISDA: Greek Default Swaps Don’t Have to Pay

Greece’s attempts to restructure its sovereign debt won’t trigger credit default swap payments, the International Swaps and Derivatives Association decided Thursday, much to the chagrin of creditors who would have welcome the safe out. The ruling means investors who bought the insurance contracts, worth a net $3.25 billion, are unlikely to get a payout, but further rulings could potentially change that, according to a Reuters report.

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The ISDA determinations committee voted unanimously that a recent collective action clause allowing Greece to force the debt restructuring and any inherent losses on all bondholders, along with the European Central Bank’s measures to avoid losses on its Greek bonds, did not constitute a credit event. However, a credit event could still happen if Greece tries to take advantage of the collective action clause after the window closes for its restructuring deal on March 8.

The ISDA’s ruling was widely expected, given prior legal guidance suggesting that credit default payouts could not be triggered by a collective action clause. But it remains to be seen whether Greece will decide to use the collective action clause once it sees how many bondholders would voluntarily take part in a bond swap. The clause is only likely to be activated if 75 percent to 90 percent of bondholders agree to the swap, according to a report by Business Insider.

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To contact the reporter on this story: Gina Smith at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com