Bank plan for Greece won't cause CDS payout: ISDA

LONDON Fri Jul 22, 2011 6:26am EDT

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LONDON (Reuters) - International bank plans for a voluntary program of debt swaps and buybacks to help rescue Greece won't trigger a "credit event" and payment of CDS contracts, derivatives body ISDA told Reuters on Friday, limiting the fallout of any default rating.

While credit rating agencies are expected to cut Greece's rating to selective default, one condition for a credit event affecting CDS is that changes in the terms of debt must be binding on all holders, which ISDA said was not the case.

"It's clearly a voluntary exchange, and I don't see how that triggers (a credit event), because there's nothing there that's binding on all holders of the debt," said David Geen, general counsel at the International Swaps and Derivatives Association said in a telephone interview.

The program for private-sector involvement in a second Greek bailout announced late on Thursday relies on banks voluntarily exchanging existing Greek government bonds for a combination of four new instruments.

The Institute of International Finance (IIF) said the bond exchange would help reduce Greece's debt pile by 13.5 billion euros, and by offering a menu of new instruments it aims to attract 90 percent investor participation in the plan.

Private sector investors were expected to take a 21 percent loss on their Greek bond holdings as part of a 37 billion euro contribution to the Greece rescue plan.

An ISDA committee has the final say on whether a credit event has occurred, triggering payment of credit default swap contracts.

The committee must be asked by a CDS market participant to consider whether a credit event has occurred, but no request has yet been made.

Latest data from U.S. clearing house the Depository Trust and Clearing Corporation showed the net notional value of outstanding Greek CDS was $4.65 billion.

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