U.S. and European credit derivatives dealers have reached a compromise over what forms of guarantees will be accepted in standard credit derivatives and pitched the draft supplement to buyers and sellers of protection Wednesday, according to credit bankers.
The draft supplement to the International Swaps and Derivatives Association's 2003 credit derivatives definitions bins the notion of qualifying affiliate guarantees and splits so-called qualifying guarantees into three categories: downstream; upstream and side-stream and unrelated or third party guarantees. Downstream guarantees will be accepted as a trigger and a deliverable obligation, third party guarantees can be used as a deliverable obligation, but not a trigger, and upstream and side-stream guarantees will be excluded. If a guarantee is deemed to be both a downstream and side stream or upstream guarantee it will be treated as a downstream guarantee.
The threshold is set at 10% for determining the guarantee. The figure was chosen to reduce the number of debatable cases, but be high enough for it to be disclosed in most jurisdictions.
