Friday, 19 December 2014
Last updated 5 hours ago
Nov 30 2006 | 10:18am ET
Hedge funds and other credit default swap investors hoping for succession protection from the International Swaps and Derivatives Association appear to be out of luck.
Proposed changes to the 2003 Credit Derivatives definitions—expected in the spring—will not offer protection to holders of CDS following financial restructurings, debt redemptions or leveraged buyouts, ISDA General Counsel Kimberly Summe told Reuters.
Hedge funds are big players in the $20 trillion CDS market. Last month, $3.6 billion hedge fund BlueMountain Capital suffered big losses when it sold swaps on Cablecom bonds, only to have Cablecom buyer Liberty Global decide not to cancel Cablecom’s existing debt. That sent the price of default protection through the roof. According to a recent Merrill Lynch survey, nearly 70% of investors are concerned about succession issues and CDS orphaning.
“We have agreed we would likely not make significant changes, but rather modest amendments,” Summe said. “There are not many cases [of succession issues leading to large losses] and each case is different—making it difficult to draft a universal solution.”
Proposed changes to the definitions, which serve as a template for CDS contracts, will be circulated to ISDA members for consultation before taking effect.
Dec 1 2014 | 10:21am ET
As 2014 winds down, Northern Trust Hedge Fund Services executives took some time to share their outlook on trends facing the industry in 2015. Read more…
Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.