Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Final whistle yet to blow on Greek default

The ISDA said that although a ‘credit event’ had not occured, one could ‘at a later date … as further facts emerge’. Confused?

It’s official, then: Greece hasn’t defaulted and bondholders can’t claim on their insurance. Not so fast. The International Swaps and Derivatives Association (ISDA), the trade body that pronounces on contentious matters in the world of credit default insurance, said it might change its mind.

Actually, that’s not quite correct either. The ISDA said “the situation in the Hellenic Republic is still evolving” and that a so-called credit-event, the thing that would trigger insurance payments, “could occur at a later date … as further facts emerge”. In other words, the final whistle hasn’t blown.

Confused about the rules of this sport? You certainly would be if you were a holder of a Greek bond who had bought protection against default. You could be forgiven for thinking that a default happened the moment the bond failed to do what it said on the label – ie pay a specified coupon and become redeemable at a fixed point in the future.

All this stuff about “voluntary” restructuring, you might feel, is nonsense since nobody would freely choose to be shunted into a new bond that obliges the owner to accept a 53% haircut. And, by the time the European Central Bank has inserted itself at the front of the queue of creditors, surely there’s no room for further debate, especially if the Greeks are also retrospectively inserting clauses to force bondholders to dance to their tune.

The ISDA feels otherwise, or at least wants to keep an open mind, and it seems to be the only referee. But this state of affairs surely spells death for the market in sovereign credit defaults swaps (CDSs).

That may be a good thing. Politicians have been so scared of triggering protection policies on Greek debt that they have jumped through hoops to avoid the possibility. Months and months of debate about “voluntary” restructuring has worked in the sense that holders of insurance have lost faith in their policies and many have decided not to keep up the premiums. The number of policies has shrunk and the Greek CDS bomb is now small enough to be allowed to explode, if that’s what the ISDA committee decides next time. But the CDS product itself must be damaged beyond repair. It’s clearly a waste of money. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds