Conquering Anglo Irish CDS
CDS-watchers — mark your calendars.
November 23 is the first possible date that Anglo Irish Bank’s sub-debt exchange could trigger a credit event for CDS written on the bonds. That is, the ‘liability management exercise’ will elicit lump-sum payments for protection buyers.
The exchange is expected to set-off CDS on both the sub- and senior bonds since it entails “a reduction in the amount of principal, or premium payable at maturity or at scheduled redemption dates.” This is a restructuring event under Isda definitions, (Section 4.7, ii) as long as it satisfies the so-called Multiple Holder Obligation requirement. That is, there must be more than three holders of the obligation and the obligation must require at least two thirds of holders agree to the potential restructuring.
According to Depository Trust & Clearing Corp data there are currently 974 contracts, or $420m net, sub- and senior CDS written on Anglo Irish debt. But the first trigger — that November 23 one — would be on Lower Tier 2 bonds due in 2017.
