The definition of a default is quite clear, and very simple.
Definition: Default – n. Failure to meet a financial obligation.
Because the private investors in these bonds are being asked to agree to these conditions, the argument is that there is no default because everybody ‘voluntarily’ agreed to the deal. Well, not everybody is voluntarily agreeing to the deal, especially those who hold the CDS paper against those bonds who would like to be paid for what is obviously a default by any other name.
There’s a second consideration here, too, and that involves the idea of subordination, which is a condition where some credit claims are superior while others are subordinate.
In the event of a default without subordination, all holders of debt would be paid out equally. That’s the normal condition for sovereign debt, and it was the condition under which the Greek debt was issued and bought.
However, the European Central Bank (ECB) has unilaterally reserved itself the right to not take any losses on its pile of Greek debt, which amounts to the same thing as creating a superior form of debt for itself:
Greece’s default gets messier
First, there’s a formal question which has been put to ISDA’s Determinations Committee, asking whether the ECB magical pixie dust, combined with the passage of the Greek law to allow the haircut, doesn’t in itself constitute a credit event under ISDA rules.
The question takes the form of a single 179-word sentence, which some lawyer somewhere probably thinks is very clever. But here’s the idea: the two events together have effectively cleaved the stock of Greek bonds into two parts, with one part (the bonds owned by the ECB) being effectively senior to the other part (the bonds owned by everybody else). This is known as Subordination, and Subordination is a credit event under ISDA rules.
Now there’s no doubt that the private sector’s Greek bonds are de facto subordinate to the ECB’s Greek bonds now, and that they weren’t subordinate a couple of weeks ago.
by andeee 
