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No Credit Event on Banco Novo, S.A.

02 March 2016 by pdonnat

On 29 December 2015, the Bank of Portugal approved the transfer from Novo Banco, S.A. to Banco Espírito Santo, S.A. of certain senior bonds in a nominal amount of EUR 1.941m. While bond holders have lost 70% of their nominal in a day, the CDS investors were worrying if their CDS protections could work. The ISDA EMEA Determination Committee (DC) has been asked if the CDS would be triggered either using the 2003 definitions or the 2014 one. The DC has eventually decided that a credit event happened on no account. While the Portuguese government decision was the best interest of Portugal, there is definitively a loophole in the CDS definition to protect a specific exposure when the pari passu debt ranking is overruled. The restructuring in Europe is the largest challenge for the CDS definitions. Being a minority bond holder in Europe is as much a challenge...