What’s a Credit Event?

This article is in relation to Greek’s CDS?

What’s a Credit event?

·         Failure to pay debts

·         Moratorium on payments

·         Restructuring (i.e. haircut, extension)

This is an extract from a Bloomberg article ‘CDS May Not Pay Out on Greek Bond Rollover’ with David Geen, general counsel at the ISDA to the question of what constitutes a credit event? With Erik Schatzker.

Erik posed the question ‘If a Greek bond rollover constitutes a credit event?’ IN my opinion, this is a secondary question!

My PRIMARY question before the secondary question is ‘Did Greece satisfies the condition of failure to pay debts?’ If it can pay off all the debts, then it is NOT a credit event. Introducing a rollover does NOT change the fact fulfilling its obligation to pay debts.

The point of the secondary question, that is, the rollover simply means that Greece does not have the ability to fulfill paying its debt that is to mature. If you want to rollover its debt, can Greece fulfill the obligation of paying ALL its debt, if YES, then introduce the rollover. If NO, it is a DEFAULT!

The PRIMARY question, I repeat, ‘Can Greece pay all its debt?’ Otherwise, it’s a credit default. And the CDS should be paid!

Let’s roll back two weeks. The French started the proposal of a rollover, The Germans seconded. This has ‘led’ us to the secondary question. The focus of a credit default has been diverted! But who is asking the primary question?

What do you think?