Financial Times
February 22, 2012
It is little more than $3bn. But the insurance pay-out on Greek bonds defaulting, regarded as a near certainty if the country’s politicians back forcing any unwilling creditors to accept losses on the Greek debt they hold, may have far-reaching repercussions.
Pay-outs on Greek sovereign credit default swaps are likely to be triggered because “collective action clauses”, or CACs as they are known, are to be inserted into Athens’ bonds.
These clauses will coerce those bondholders who resist the a debt swap deal agreed by European leaders this week into accepting the terms of a debt swap that will see the value of their securities plummet.
About 75 per cent of Greek bonds held by the private sector are likely to be exchanged voluntarily. A pay-out, or “credit event”, could be declared where the CACs force any “holdouts” to accept a deal.
The event itself may have little effect on eurozone equity and bond markets because the overall pay-out is relatively small and there has been a growing expectation in recent weeks that it is inevitable.
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