Short shrift for CDS holders
There is no shortage of recent restructuring situations where succession issues have arisen. But in most the CDS lobby has had scant influence. Last year’s corporate reorganization at WPP led to speculation that there would not be a deliverable into the CDS. A guarantee remains over notes until 2014, but there remains a chance that the restructured company might novate those bonds before then. In another recent case, Rentokil Initial added a new top parent to its company structure (Rentokil Initial 2005). But the reference entity to its outstanding bonds is Rentokil Initial 1927 and once the existing bonds mature the guarantee drops away and there are no deliverables for the CDS. Any corporate reorganization that adds to the corporate structure above the reference entity runs a risk for CDS holders that debt will no longer be issued from the reference entity (indeed, this risk remains for the Experian CDS as debt might be issued at a higher level than Experian in future).
Another case that has attracted a lot of attention is that of ITV. The parent company (ITV) has announced that it plans to have no more debt at subsidiary Carlton Communications level once the outstanding 2007 and 2009 issues mature.