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Revisiting the restructuring issue

       
Robert Pickel

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 was the Conseco incident.



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