Tuesday 10 January 2012

Greece Imposing Losses Would Likely Be Credit Event, ITC Says

Greece Imposing Losses Would Likely Be Credit Event, ITC Says
2012-01-10 08:02:48.19 GMT

     (For more on the euro crisis, click on {EXT4 <GO>})

By John Glover and Abigail Moses
     Jan. 10 (Bloomberg) -- Imposing losses on Greek bondholders holding out against a debt restructuring would allow buyers of credit-default swap protection to demand payment, according to Andreas Koutras of research firm ITC Markets.
     The Greek government plans to insert so-called collective action clauses into its bond documentation, allowing bondholders to force holdouts to accept the same terms as the majority, Dow Jones Newswires reported yesterday. The report cited an unnamed person with the Troika, as the delegation representing the International Monetary Fund, the European Union and the European Central Bank is known.

     “The introduction of the clause could probably be structured so as to not be an event of default that triggers
CDS,” said Koutras. “It will trigger CDS only if they activate it.”
     Negotiations between Greece and its creditors on a voluntary bond swap designed to reduce the nation’s debt burden
stalled amid disagreements on the terms of the transaction, according to Der Spiegel. Because most of Greece’s bonds were
issued under Greek law, Parliament would be able to pass legislation inserting a change in conditions governing the debt,
imposing a binding writedown on investors.
     The use of so-called collective action clauses would trigger what’s known as a restructuring credit event. These can
be caused by a reduction in principal or interest, postponement or deferral of payments or a change in the ranking or currency of obligations, according to the International Swaps & Derivatives Association.
     Any of these changes must result from a deterioration in creditworthiness, apply to multiple investors and be binding on
all holders. ISDA’s determinations committee rules whether credit swaps can be triggered.
     Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower
fail to adhere to its debt agreements.

For Related News and Information:
Sovereign debt crisis: CRIS <GO>
Top bond stories: TOP BON <GO>
Top financial news: TOP FIN <GO>

--Editors: Michael Shanahan, Paul Armstrong

To contact the reporters on this story:
John Glover in London at +44-20-7073-3563 or
Abigail Moses in London at +44-20-7673-2118 or

To contact the editor responsible for this story:
Paul Armstrong at +44-20-7330-7185 or