ISDA: Greece Escapes Default For Now

The International Swaps & Derivatives Association (ISDA) has met in the last hour to decide whether or not Greece will default on their debt. Greece has used what is known as "collective action clauses" (CACs) in order to force investors and private creditors to take a loss. Their debt restructuring has caused payouts on $3 billion of default insurance. Using these CACs makes the restructuring considered a "credit event". This credit event indicates that a maximum of $3.16 billion of net outstanding Greek credit default swap contracts can be paid out.

Greece averted the immediate threat of an uncontrolled default, winning strong acceptance from its private creditors for a bond swap deal which will eat into its mountainous public debt and clear the way for a new bailout.

The Greek finance ministry said creditors had tendered 85.8 percent of the 177 billion euros in bonds regulated by Greek law. This would reach 95.7 percent of all privately-held Greek debt with the use of "collective action clauses" to enforce the deal on creditors who refused to take part voluntarily.

Despite the success, the deal may at best buy time for a country facing its biggest economic crisis since World War Two. The event means Greece is now set to repay debt due soon and has a second chance to rebuild its shattered economy, while the eurozone has dodged default chaos that could have destabilized global financial markets. A full-blown default would be catastrophic for Greece, and could cost the eurozone up to one trillion euros according to one estimation while sending shockwaves through global markets.

Posted in: bailout,CAC,collective action clauses,default,eurozone,Greece,international swaps and derivitives association,ISDA