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ARTICLE · 15 AUGUST 2019

ISDA Implements Changes To The Credit Derivatives Definitions

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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In a continuing effort to address the advent of narrowly tailored credit events (NTCEs) in the CDS market, ISDA is now preparing for the implementation of the changes designed to deter market participants from running these strategies.

United StatesFinance and Banking
Fabien Carruzzo
Fabien Carruzzo
Daniel King
Daniel King
Daniel Eggermann
Daniel Eggermann
Stephen Zide
Stephen Zide
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In a continuing effort to address the advent of narrowly tailored credit events (NTCEs) in the CDS market, ISDA is now preparing for the implementation of the changes designed to deter market participants from running these strategies.

After receiving feedback from market participants, ISDA has now finalized the proposal and has released the final changes that will be made to the Credit Derivatives Definitions (Updated Definitions). The Updated Definitions subject any Failure to Pay credit event determination to a creditworthiness deterioration requirement, which will be determined based on a number of factors specified in a related guidance note. In addition, certain changes were made to the definition of Outstanding Principal Balance to deal with pre-bankruptcy OID issues. The OID-related changes prevent market participants from taking advantage of debt issued with an original discount that would not be taken into account under the current definitions and could

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