March 1, 2012 / 11:06 AM / 6 years ago

UPDATE 1-Greek CDS pressure heats up as payout verdict nears

* Markets await verdict in Greek default insurance payout

* Pressure on ISDA heats up as second CDS query submitted

* ‘Credit event’ still seen unlikely until after bond swap (Recasts throughout, adds context)

By William James

LONDON, March 1 (Reuters) - Investors are ramping up efforts to secure a windfall payout on Greek default insurance as they await a verdict on whether Athens’ preparations for a debt restructuring have triggered credit default swap contracts.

The International Swaps and Derivatives Association committee which rules on CDS matters was due to meet at 1100 GMT on Thursday to discuss a query from a market participant on whether a ‘credit event’, that would lead to an insurance payout, has occurred.

Greece has announced plans to restructure its towering debt pile by asking creditors to swap old bonds for new ones worth less than half their original value.

The committee will consider whether CDS contracts must pay out as a result of new Greek legislation that could force bondholders to accept losses, and after the European Central bank took steps to dodge writedowns on its Greek bonds.

Athens has already approved a law that introduces Collective Action Clauses (CACs) which, if needed, would allow it to impose the same conditions on all private bondholders - willing or not.

A second request that poses a slightly different question was also submitted to the committee for consideration, even before the first meeting had started. ISDA has not yet stated whether it will consider the second question.

The ISDA verdict will be key to buyers and sellers of default insurance contracts worth a net $3.25 billion who have been positioning themselves for a likely credit event since Greece agreed restructuring plans earlier this year.

However, market participants said the CDS trigger was unlikely to come from Thursday’s meeting as the subordination of bondholders to the ECB was hard to prove.

Previous guidance from legal experts has also suggested that the inclusion of CACs by Greece would not be sufficient to constitute a credit event.

Greece was eventually expected to trigger a credit event shortly after the bond swap is wrapped up on March 8 if it fails to gather enough voluntary participation, forcing Athens to invoke the CACs to ensure enough of the country’s debt was written off. (Editing by Susan Fenton)

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