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Damned if it is an event and damned if it isn’t


Will the Argentine debt restructuring lead to changes being made to the documentation of credit derivative contracts relating to the emerging markets - and, in particular, emerging-market sovereign debt?

The possibility, which is being reviewed by a specially formed emerging-markets subcommittee of the International Swaps&Derivatives Association (ISDA), has been thrust into the spotlight by three lawsuits involving JPMorgan.

The investment bank - the largest user of the credit derivatives market, as a major buyer and seller of protection and also the leading intermediary - is involved in three legal disputes relating to Argentina's $50 billion debt exchange last November.

On the surface, the bank appears to be adopting a simultaneously opposing stance as to whether the debt restructuring - which constituted a voluntary exchange - did or did not represent a credit event triggering the delivery of protection on credit default swaps.

On the one hand JPMorgan says the restructuring was not a credit event. As a result, the bank is being sued by two hedge funds - HBK Master Fund and Eternity Global Master Fund - which had bought protection that they claim should have been paid.

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