May 2001
Revisiting the restructuring issue
The rapidly evolving credit default swap market advanced a
few steps this month when the International Swaps&Derivatives
Association (Isda) reached a breakthrough agreement on
restructuring. Its amendment states that when a default swap is
triggered by a restructuring event the maximum maturity of the
obligations the buyer of protection can deliver to the seller is 30
months.
Since the end of last year the credit default swap market has been
plagued by uncertainties over restructuring, so Isda's conclusion
has been eagerly awaited. Restructuring has easily proved to be the
most troublesome of the events identified by Isda in 1999 as being
individually sufficient to trigger a default swap. The remaining
conditions are bankruptcy, failure to pay, repudiation or
moratorium, obligation default and obligation acceleration.
Though there has been a general mood of discontent over the issue
among market participants for some time, the catalyst for Isda's
move...
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