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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum

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Dec 15 4:00 PM EST

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To: pogohere who wrote (82122)	10/28/2011 3:57:00 PM
From: pogohere	Read Replies (2) of 218509

Fitch: 50% Greek Bond Haircut May Equal Default European leaders’ agreement on a 50 percent haircut on Greek bonds may create an event of default if investors accept it, Fitch Ratings said in a statement today. “The 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” the statement said. While the accord is “a necessary step to put the Greek sovereign’s public finances on a more sustainable footing,” Greece will face “significant challenges” including ratios of government debt to gross domestic product at “well over 100 percent even in a positive scenario.” European officials concluded their 14th crisis summit in 21 months early yesterday in Brussels with an agreement that persuades investors in Greek government bonds to write down half their holdings. Fitch said today that more details are needed on the accord, which includes an increase in the region’s rescue fund to 1 trillion euros ($1.4 trillion). “It’s highly likely that all three rating agencies will classify this restructuring as a technical default,” said Padhraic Garvey, head of developed debt-market strategy at ING Groep NV in Amsterdam. “Even if it’s voluntary, investors are left with a product that’s lower in value to what they originally agreed.” . . . The International Swaps and Derivatives Association, whose market decisions are binding, hasn’t said whether the $3.7 billion of credit-default swaps linked to Greek government bonds should pay out, though it has indicated the decision hinges on whether investors accept losses voluntarily. A credit event can be caused by a reduction in principal or interest, postponement or deferral of payments or a change in the ranking or currency of obligations, according to the New York-based trade group’s rules. ING’S Garvey said Fitch’s announcement probably won’t trigger insurance contracts linked to the debt. “The indications are that ISDA won’t class it as a credit event,” he said. bloomberg.com My understanding is that such swaps are contracts crafted individually by the parties to them who can vary the terms to suit their requirements. Therefore some of these contracts may indicate that a rating agency determination of default triggers the requirement of a payout to the covered party.

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