Recent developments arising out of the Greek sovereign debt crisis have required the ISDA Determinations Committee to determine whether a “Credit Event” has occurred under credit default swaps (“CDS”) referencing Greek sovereign debt. The Determinations Committee concluded on 1 March 2012 that a Credit Event has not yet occurred. We explain below why this is the case.

Standard Sovereign CDS incorporates the 2003 ISDA Credit Derivatives Definitions (as amended). These definitions set out what will constitute Credit Events and the Determinations Committee will then decide (on request) whether a relevant Credit Event has occurred and, broadly, the market has agreed to live with the result.

The Credit Event in question is “Restructuring”. Many different things might constitute “Restructuring”, but those in play at the moment are: (1) reduction in principal or interest, and (2) change in ranking in priority of payment, causing Subordination. These must occur in a form that binds all holders of the relevant Obligation and must result from deterioration in creditworthiness or financial condition of the debtor.

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