It might sound like a bit of an understatement, but the International Swaps and Derivatives Association (ISDA), has announced that the government of Greece has experienced “a credit event”.
This means that investors who bought credit default swaps to hedge their exposure to Greek debt should be able to collect on that insurance.
The organization received an official request for clarification when it’s Determining Committee for Europe, Middle East and Africa (EMEA DC) was asked: “Has a Restructuring Credit Event occurred with respect to Hellenic Republic?”
The resulting vote of the committee’s 15 members was unanimous.
“The EMEA DC resolved that a Restructuring Credit Event has occurred under Section 4.7 of the ISDA 2003 Credit Derivatives Definitions (as amended by the July 2009 Supplement) (the 2003 Definitions) following the exercise by The Hellenic Republic of collective action clauses to amend the terms of Greek law governed bonds issued by The Hellenic Republic (the Affected Bonds) such that the right of all holders of the Affected Bonds to receive payments has been reduced.”
“The EMEA DC has resolved to hold an auction with respect to the settlement of standard credit default swaps for which The Hellenic Republic is the reference entity. To maximise the range of obligations that market participants may deliver in settlement of any such credit default swaps, the EMEA DC has agreed to run an expedited auction process such that the auction itself will take place on March 19, 2012. In light of this expedited auction process, market participants should submit any obligations that they would like to include on the list of deliverable obligations to ISDA as soon as possible.”
The ISDA says that the total payouts on Greek debt default swaps will be less than $3.2 billion. That should limit the risk of a default among the banks and investment funds that are on the other side of the swaps.