The working group prepping the loan-only credit default swap index, LCDX, is now hoping for an April 3 launch after it has been pushed back numerous times. The key issues affecting the index are deciding what type of settlement to use in auction, how many currencies should be used and the issues of how private credit agreements should be handled.
"The biggest issue is what kind of settlement do you use? That is being worked out right now," said one working group participant. The choices under discussion are whether to use standard physical settlement for distressed trades in the cash market or use single name LCDS settlement protocol or a combination of the two.
The International Swaps and Derivatives Association holds weekly meetings and this past Wednesday the discussion focused on this settlement issue, along with what currencies should be used. Currently, currencies can be from Canada, Japan, Switzerland, the United Kingdom, the U.S. and the euro and five more are being considered. The reason for the discussion is that the Ford Motor Co. revolver is partially drawable in a currency that is not one of the six existing currencies.
Another issue under discussion is how to handle private credit agreements. Because some of the credit agreements for the reference credits are confidential and not available to public investors, parties involved in setting up the index are not comfortable including names where all the information is not available
Credits including Ford, Georgia Pacific Corp. and HCA, are still being scrubbed, which is the process of deciding the proper reference obligation and deliverable for an LCDS contract. These three credits are among the most actively traded single-name LCDS contracts, Ford, however, is the key credit because as the one participant said, "you can create an index that is big and liquid with public credit agreements, but [Ford], this is the cause for issue."
A trader in New York said about 90% of the candidates for inclusion have been scrubbed but the remaining are some of most actively traded names. The group, however, has decided to conduct a dealer poll to discuss dissemination of private-deal information. A call to ISDA was not returned.
