No Credit Event For Greek CDS Has Occured Says ISDA Committee

LONDON (Dow Jones)--Payouts on credit default swaps written on Greek sovereign debt will not be triggered after the country last week passed legislation allowing it to strong-arm private creditors to accepting losses on their holdings, a committee of dealers and investors decided Thursday.

The International Swaps and Derivatives Association's EMEA Determinations Committee voted on two potential credit event questions posed by anonymous market participants this week.

The 15-member committee voted unanimously that a credit event has not occurred in relation to two questions submitted by market participants.

The first question, submitted late Monday, and accepted for consideration Tuesday, was based on the argument that the so-called collective action clauses inserted into Greek-law bonds had constituted a "credit event."

The second question, posed early Thursday, asked if the debt exchange resulting in "a reduction in the amount of principal or premium payable at maturity or at scheduled redemption dates" between Greece and a sufficient number of private bondholders to bind all holders, would result in a "restructuring credit event."

The committee noted that the situation in Greece is still evolving and its decision Thursday, that a credit event hasn't occurred, doesn't prevent others from submitting further questions on a potential credit event as the Greek debt restructuring unfolds.

CDS, which function like a form of default insurance for corporate and sovereign bonds, can be triggered by a restructuring of the reference entity's debt, a failure to pay coupons or principal on the bonds, or a bankruptcy.

There are about $3.2 billion worth of Greek sovereign debt CDS outstanding, according to the Depository Trust and Clearing Corp.

Last week, private holders of Greek government debt accepted a restructuring involving the write-down of 53.5% of their investment, alongside a EUR130 billion bailout agreement between the Greek government and its official lenders, the European Union and the International Monetary Fund.