Default insurance on Greek debt won’t be paid out, the International Swaps & Derivatives Association said after it was asked to rule whether part of the nation’s $170 billion bailout was a credit event.
The group said the European Central Bank’s exchange of Greek bonds for new securities exempt from losses being imposed on private investors hasn’t triggered $3.25 billion of outstanding credit-default swaps. ISDA’s determinations committee, including JPMorgan Chase & Co. and Pacific Investment Management Co., said the switch didn’t constitute subordination, one of the criteria for a payout under a restructuring event.
“The situation in the Hellenic Republic is still evolving” and today’s decisions “do not affect the right or ability to submit further questions,” ISDA said in a statement. The decision is not an expression of the committee’s “view as to whether a credit event could occur at a later date,” the association said.
A swaps payout may still happen if Greece uses collective action clauses on private investors who refuse to take so-called haircuts on their debt holdings, according to ISDA’s rules. Officials including former ECB President Jean-Claude Trichethave opposed triggering swaps because they’re concerned traders would be encouraged to bet against failing nations and worsenEurope’s debt crisis.
‘Big Issue’
“There’s value to getting some clarity even if the ruling’s no,” said Peter Tchir, founder of New York-based hedge fund TF Market Advisors. “It’s a pretty big issue for what they’re trying to do in other countries.”
