Bloomberg
May 20, 2011
Greece is unlikely to restructure its debt in the short term because it would be difficult to do so without triggering payouts of credit-default swaps, according to Citigroup Inc.
“It is certainly possible to envisage forms of restructuring which fail to trigger CDS, but we are doubtful that they will be employed in practice,” said Michael Hampden- Turner, a strategist at Citigroup in London. “We suspect that European and ECB policy makers will duck the hard decisions.”
Political leaders and European Central Bank officials are likely to “muddle through” with another “state-funded bailout, perhaps this time collateralized by future asset sales,” he said. New steps are needed after last year’s 110 billion-euro ($156 billion) rescue failed to restore Greece’s financial health.
European officials are trying to avoid tripping swaps, with French Finance Minister Christine Lagarde saying this week that “anything that would constitute a credit event, is for me off the table.” Speculation is increasing that a restructuring of Greek bonds may be possible without meeting the International Swaps & Derivatives Association’s definitions of such an event.
That could be avoided if changes are voluntary rather than binding, Hampden-Turner said. But even a voluntary restructuring, or “reprofiling” as officials are calling a possible maturity extension, might still trigger the contracts, he said.
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