The International Swaps and Derivatives Association Inc. (ISDA) has “resolved unanimously that a Restructuring Credit Event has occurred with respect to The Hellenic Republic (Greece).” The triggering action was Greece’s invocation of the “collective action clause” in the domestic law bonds, which essentially forced all bond holders to accept the deal.

The Greek government’s action forced the ISDA to declare the debt swap a credit event and triggered a payout of $3.2 billion to holders of credit default swaps (CDS) on the original Greek bonds. The ISDA will hold an auction on March 19th to settle the CDS.

The ISDA’s action was expected, especially following its rulings last week that neither the debt swap itself nor the agreement between Greece and its bondholders constituted a credit event. There was absolutely no question that the collective action clauses would in fact constitute a credit event and trigger the CDS payout. If the ISDA had ruled any other way, CDS of any kind would have become virtually worthless.

The ISDA press release is available here.