Credit Suisse takeover not a bankruptcy event, claims CDS panel
1 min read 22 May 2023, 10:49 PM ISTThe Swiss bank in March was taken over by UBS in a state-assisted deal that wiped out Credit Suisse's $17 billion Additional Tier 1 (AT1) bondholders
PremiumA panel overseeing the credit-default swap market has ruled that the government-brokered takeover of Credit Suisse Group AG did not constitute a bankruptcy event in which an insurance payout could be triggered.
The Credit Derivatives Determinations Committee said the fire sale of Credit Suisse to UBS Group AG was not a bankruptcy credit event, according to a notice on its website. The question to the panel had related to both senior and subordinated Credit Suisse Group swaps.
The Swiss bank in March was taken over by UBS in a state-assisted deal that wiped out Credit Suisse's $17 billion Additional Tier 1 (AT1) bondholders, upending a long-established practice of giving bondholders priority over shareholders in a debt recovery.
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This is the second time in recent days that the committee has ruled against the prospect of a payout in response to questions posed by market participants. The latest query to the CDDC focused on whether the crisis of confidence in Credit Suisse equated to a bankruptcy scenario, according to the terms detailed in the credit default swaps rulebook written by the International Swaps and Derivatives Association.
This came despite Credit Suisse did not enter insolvency proceedings anywhere in the world. The committee last week ruled against the payout query related to the write-down of Credit Suisse’s Additional Tier 1 securities during the March takeover of the lender by UBS Group AG, saying that a so-called governmental intervention credit event hadn’t occurred.
The panel took the view that the bonds were too junior in the capital structure to trigger swaps related to the subordinated debt. The main difference between the two questions is that a bankruptcy credit event relates to the issuer’s finances, while a governmental intervention credit event happens when the intervention by the state leads to a reduction in the interest or the principal of the bonds underlying the swaps, according to Bloomberg.
With inputs from agencies
