The credit derivatives market is taking another step on the long road to maturity with the International Swaps & Derivatives Association 2003 credit derivatives definitions. The changes may seem insignificant for all the hours of research that went into them. But for buyers and sellers of credit protection it will be a huge leap forward.
The definitions replace the 1999 version, which has been given the piecemeal treatment during the last four years as various credit events have poked holes in it - the default of Conseco, National Power restructuring and the crisis in Argentina, for example. ISDA expects dealers to begin using the new format in March.
Restructuring remains the biggest bone of contention among the dealer community. "This is probably the part of the agreement that took the longest to negotiate, is one of the most difficult and raises the most questions," says David Geen, senior counsel at Goldman Sachs. Already, there are three forms of agreement in use. In the US, protection contracts on high-yield bonds are written without a restructuring clause.
The issue dates back to the default of Conseco in 2000. After restructuring, the bonds traded at 94 cents to the dollar.