March 19th, 2012
04:18 PM GMT
London (CNN) – Investors holding insurance to protect against Greece defaulting on its debts will collect just over $2.5 billion after an auction of the country’s bonds found their value to be 21.5 cents in the euro.
The payout gives relief to those who have long bet the country will be unable to pay its bills. Greece has avoided that outcome for months as it continued to be buffered by loans from the eurozone’s bailout fund and the International Monetary Fund.
A default, triggering payment of the insurance - or credit default swaps - was finally called after the country forced its creditors to take massive cuts in the value of their investments as part of a debt swap.
That so-called “credit event” was therefore tripped by a restructuring of the country’s debt, rather than straight non-payment.
The price was reached after an auction in which the country’s bonds - including new ones held by investors who participated in the debt restructuring - were traded by banks to find a price.
Those holding the credit default swaps will now be paid out 78.5 cents on the euro to close out the contracts.
Market participants said the auction went largely as expected, despite quirks created by the country’s debt restructuring.
One observer said the auction was essentially a “washing up” of the restructuring. One takeaway, he added, was that the “political furore” around credit default swaps - once held up by politicians as a highly destabilizing influence in the financial markets - had died down.
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