Credit Suisse AT1 Wipeout
Credit Suisse Group AG’s decision to wipe out its Additional Tier 1 (AT1) bonds has been ruled by a panel of credit derivatives experts. The panel determined that the Swiss bank’s move did not trigger a payout on credit default swaps (CDS).
Background of Credit Suisse AT1 Wipeout
In April, Credit Suisse announced that it would cancel its AT1 bonds, which are perpetual securities that do not have a maturity date. The bank said that the move was necessary to raise capital and strengthen its balance sheet.
The decision to cancel the AT1 bonds was controversial, as it would result in a loss for investors who had purchased the bonds. Some investors argued that the move should trigger a payout on CDS contracts, which are insurance-like instruments that provide protection against losses on bonds.
CDS Panel Ruling
In response to the controversy, a panel of credit derivatives experts was convened to determine whether Credit Suisse’s decision to cancel the AT1 bonds should trigger a payout on CDS contracts.
The panel, which was composed of representatives from the International Swaps and Derivatives Association (ISDA), the Bank for International Settlements (BIS), and the International Capital Market Association (ICMA), ruled that Credit Suisse’s decision did not trigger a payout on CDS contracts.
The panel noted that the AT1 bonds were not in default, and that Credit Suisse had not missed any payments on the bonds. The panel also noted that the AT1 bonds were not subject to a restructuring or a debt exchange.
Reaction to CDS Panel Ruling
The ruling by the panel of credit derivatives experts has been met with mixed reactions. Some investors have expressed disappointment that the panel did not rule in their favor, while others have welcomed the decision as a sign that the CDS market is functioning properly.
The ruling is also being seen as a victory for Credit Suisse, as it allows the bank to move forward with its plan to raise capital and strengthen its balance sheet.
Implications of CDS Panel Ruling
The ruling by the panel of credit derivatives experts has important implications for the CDS market. The ruling shows that CDS contracts are not triggered by a bank’s decision to cancel its AT1 bonds, even if the decision results in a loss for investors.
The ruling also shows that CDS contracts are not triggered by a bank’s decision to restructure its debt or exchange its bonds for new securities. This is important, as it means that CDS contracts can provide protection against losses on bonds without being triggered by a bank’s decision to restructure its debt.
Conclusion
The ruling by the panel of credit derivatives experts has important implications for the CDS market. The ruling shows that CDS contracts are not triggered by a bank’s decision to cancel its AT1 bonds, even if the decision results in a loss for investors. The ruling also shows that CDS contracts are not triggered by a bank’s decision to restructure its debt or exchange its bonds for new securities. This is important, as it means that CDS contracts can provide protection against losses on bonds without being triggered by a bank’s decision to restructure its debt.