The nascent U.S. market for credit-default swaps on levered loans is struggling to get off the ground, even as more banks are getting involved. With most investors looking to sell protection on CDS on levered loans, traders said they're having a hard time developing a two-way market.
"Several banks have introduced this and are pushing it," said one structurer. "But I haven't seen any traction yet." Traders and structurers pointed to the absence of standardized documentation as an explanation for the slow start and compared problems in this market to those in the early stages of trading CDS on asset-backed securities. Since the International Swaps and Derivatives Association published its CDS on ABS templates earlier this year (DW, 10/21), traders have seen more activity in that space. "[The definitions] set the ground for more active trading," a trader said. They expect definitions for loan swaps, a project ISDA has just started working on, to have much the same effect.
