In my old job where we acted as sellers of protection in credit default swaps (more often than as buyers, anyway), we used to fight like hell to ensure that any restructuring of bank loans was not considered a “credit event” thereby triggering the swap protection and forcing us to pay.
Our rationale was that bank loans were restructured all of the time in workouts with banks taking equity and other consideration in exchange for forgiveness and so it should not be considered a default. It looks like that rationale carried the day for the CDS on sovereign debt, too, much to the chagrin of buyers of protection on Greek debt. Just because it wasn’t defined as a default doesn’t mean it wasn’t one.
From Bloomberg: http://www.bloomberg.com/news/2011-10-27/asian-stocks-euro-advance-on-europe-s-expansion-of-bailout-metals-rally.html
The EU agreement with investors for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association’s rules. ISDA will decide if the credit-default swaps should pay out depending on whether it judges losses to be voluntary or compulsory.
I have been out of that business for longer than I was in it, but if this isn’t the death knell for CDS on sovereign debt, then there never will be one.