No ‘credit event’ in Greek deal
ISDA's (International Swaps and Derivatives Association) EMEA Determinations Committee decided on 1 March that no credit event had occurred with respect to recent questions on the Hellenic Republic's debt restructuring, thus no Credit Default Swaps will be paid on the Greek debt paper.
The ISDA announcement stated: “In light of today’s EMEA Determinations Committee (EMEA, DC) unanimous decisions in respect of the two potential Credit Event questions relating to the Hellenic Republic the EMEA DC has agreed to publish the following statement:
The first submitted question (DC Issue 2012022401) asked whether the holders of Greek law bonds had been subordinated to the ECB and certain National Central Banks whose bonds were acquired by the Hellenic Republic prior to the implementation of new Greek legislation such that such subordination constitutes a Restructuring Credit Event. The EMEA DC unanimously determined that the specific fact pattern referred to in the first submitted question does not satisfy either limb of the definition of Subordination as set out in the ISDA 2003 Credit Derivatives Definitions (the 2003 Definitions) and therefore a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.
The second submitted question (DC Issue 2012022901) asked whether there had been any agreement between the Hellenic Republic and the holders of private Greek debt which constitutes a Restructuring Credit Event.
The EMEA DC determined that it had not received any evidence of an agreement which meets the requirements of Section 4.7(a) of the 2003 Definitions and therefore based on the facts available to it, the EMEA DC unanimously determined that a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.
The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light.”
The ‘haircut’
In short the EMEA Determinations Committee of ISDA was asked if the Brussels/Athens arrangement for a 53.5% ‘haircut’ of the privately held Greek sovereign debt constitutes a credit event and as stated above it replied unanimously that no such a credit event occurred.
The EMEA Committee is as follows : Voting Dealers : Bank of America / Merrill Lynch, Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, N.A., Morgan Stanley, UBS, Consultative Dealers : Citibank, The Royal Bank of Scotland, Voting Non-dealers, Blue Mountain Capital (Second Term Non-dealer), Citadel, LLC(First Term Non-dealer), D.E. Shaw Group (First Term Non-dealer), Elliott Management Corporation (Third Term Non-dealer), Pacific Investment Management Co., LLC (Second Term Non-dealer). The International Swaps and Derivatives Association, Inc. functions as secretary to the Determinations Committee (the DC), which will decide on questions relating to the Hellenic Republic's debt. In accordance with the Determinations Committee Rules, a meeting will be held at 11:00 GMT on 1 March, to determine whether a credit event has occurred.
At this point, it should be remembered that the Greek parliament has already voted to activate the CACs (Collective Action Closes). The CACs will impose an agreement struck between the Greek Republic and a number of its private lenders on the rest of the creditors to cut the value of the Greek bonds they hold by 53.5%.
Last week, the Greek Republic issued a demand of all private holders of Greek bonds to accept a swap of ‘old bonds for new’ at a nominal value of 31.5% of the paper they now hold, plus 15% back in cash. This agreement was concluded between Greece, the EU, the IMF and the International Institute of Finance (IFF), which represents a number of major European banks, but not all of Greece's creditors.
The EMEA Determinations Committee therefore decided that the extension of this agreement to all creditors through the applications of CACs does not constitute a credit event – in the opposite case that is if a credit event had occurred , creditors who have insured their bonds on the Credit Default Swaps (CDS) market would have been entitled to the full nominal value of the bonds they hold, irrespective of whether they have bought them on the secondary bond market with reductions as high as 60% of their nominal value.
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