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A Default Within Ten Days Of The Crossover Launch

28 September 2018 by lberuti

In creditland, Italy was decisively in the news today, and not only because the country’s budget plans put its government on a collision course with the European Union. ASTIM (Astaldi) announced this morning that they filed for creditor protection (concordato preventive), which allows the company to continue as a going concern. The question for the CDS community is whether or not this will trigger a bankruptcy event, and it appears that opinions are split on the subject. In any case, it is worth highlighting that there are subtle differences in how “bankruptcy” is defined depending on whether your CDS contract is governed by the 2003 or the 2014 definitions. Under the 2003 definitions, a proceeding seeking relief under bankruptcy law constitutes “bankruptcy”, provided it is not dismissed of course. Under the 2014 definitions, only proceedings seeking a similar relief to a judgement of insolvency constitutes “bankruptcy”. The ISDA Decision Committee might therefore decides different outcomes for the 2 types of contracts. But even if the DC rules that this is not a bankruptcy credit event under 2014 documentations, it will not be the end of the story. Coupons are due soon on some of ASTIM’s bonds. CDS investors will be scrutinising payment dates and grace periods. The iTraxx Crossover could become a 74-member-index in the not too distant future.