There are legal and contractual implications to a potential Greek exit from the eurozone, according to panelists at the Global ABS 2012 conference being held in Brussels this week by Information Management Network and the Association for Financial Markets in Europe.
For securitized deals, panelists at Wednesday’s opening session said, the implications will vary from transaction to transaction, depending on the state and place where obligations issued by a deal should be paid and the jurisdiction of the parties, among other things.
Ian Sederis, a partner in the London capital markets group at law firm Simmons and Simmons, said that, in most cases, these deals would become subject to local laws should a country exit the eurozone.
The problem, he said, is that a special purpose vehicle might have an asset and liability mismatch if it is not a party of the exiting state or if it is obligations are euro-denominated. A redenomination of an exiting state can therefore cause some kind of event of default.
There are also potential disputes that can arise from a Greek redenomination. For instance, the party from the exiting state might have obligations it is not allowed to pay. A counterparty to a swap, in this instance, can terminate a contract if an SPV has an inability to pay.
Both in regards to securitizations, and in a broader sense, panelists said that there will be work required to understand the dynamics if Greece, or any of the other troubled European states, exit the eurozone.
However, some of the panelists said that Greece’s potential removal remains an extreme scenario, one that could still be avoided.
Ganesh Rajendra, head of EMEAA asset and mortgage backed strategy at RBS Global Banking & Markets, said that if one takes the debt metrics of the eurozone as whole, the leverage levels are not that high at all.
At this point, the issue is getting rid of the political gridlock stopping other states from bailing out Greece, he said.
Similarly, Aidan Canny, managing director at BNY Mellon, said that “political will” is needed to make this group of European states intact and stronger.