EUROPE - Critics have described the writing off of Greek debt as a "slaughter", warning that the retroactive inclusion of collective-action clauses into domestic bonds had left swaps vulnerable to legal challenges.

Even commentators who saw last Friday's agreement in a largely positive light were quick to note that the risk of a euro-zone exit for Greece remained if the second bailout package proved "unworkable".

The International Swaps and Derivatives Association (ISDA) defended its decision to brand the debt haircut - or PSI - a credit event, despite previous statements ruling out the triggering of credit default swaps.

In a statement, it said: "When the Greek debt restructuring plan was first announced, there was no mention of using collective-action clauses (CACs), and the plan was proposed to be voluntary.

"Based on this, ISDA stated that, subject to the ultimate decision by the Determinations Committee, the restructuring plan at that time did not appear likely to constitute a credit event."

However, others warned that despite 85% of creditors voting in favour of the haircut, some might still resist any losses.

James Campbell, partner at law firm Pillsbury, said before the ISDA's decision that investors in Greek bonds "had been led to the slaughter" and warned that the use of CACs that were retrofitted into domestic bonds left the default open to legal challenges.

He said Greece was expected to extend the deadline on holdouts because they possessed an "extensive legal armoury" that could prove difficult to sidestep for a government in default.

"Many argue that these attentions are odious," Campbell conceded. "But, in the case of Greece, there may be a degree of sympathy for holdouts, as they are dealing with a government that has lost its moral compass in retroactively inserting collective-action clauses into its domestic bonds and using those clauses to deprive investors of their legitimate expectations."

While Fidelity Worldwide Investment's sovereign analyst Tristan Cooper was more positive on the announcement, as it lowered future systemic risk, he said the Greek situation was far from over.

"A euro-zone exit may still be on the cards if the second troika programme proves unworkable," he said, referencing both rising anti-troika sentiment in Greece and increasing public dislike of bailouts from countries perceived as footing the bill, such as Germany.

Aberdeen Asset Management's head of global strategy Mike Turner seconded these concerns, saying it looked an "impossible task" to reduce the country's debt-to-GDP ratio to the targeted 120% over the next eight years in light of the shrinking domestic economy.

"The country may well be in the midst of one of the longest recessions in modern history," he said, criticising as "woefully lacking" the absence of any plan to generate growth.

As the new bonds were unveiled on Monday, Turner added that the "precarious" situation would only continue, predicting yields of 18-21% - well above fellow bailout recipients Ireland and Portugal.

He added that markets had so far failed to react to the changes, with Cooper saying this could eventually encourage further write-offs.

"There is some concern among bond investors that the deal might encourage policymakers to try similar PSI restructurings in other countries given the relatively muted market reaction," he said.

"I hope the halo effect from the LTRO has not bred complacency."