The debate over the definition of restructuring as a credit event refuses to lie down even though the proposed International Swaps and Derivatives Association 2003 definitions allow for three different types. "The debate comes down to whether this a death contract or a deterioration contract," according to Mark Timmis, director and head of credit derivatives trading at Credit Suisse First Boston in London.
Although the U.S. and European markets will remain divided after the 2003 definitions start to be used, the contracts will be more similar, according to Nigel Reglar, legal counsel at Deutsche Bank in London. For example, all forms of the restructuring event under the new definitions insist that a liability has to be converted into a non-group-of-seven or AAA OECD currency to trigger the protection.
Without restructuring as a credit event, banks, which have bought bankruptcy and failure to pay protection on a corporate, might decide to put it into bankruptcy to recoup their loss rather than restructure the asset and take a hit, explained Cameron Munro, global head of credit structuring and trading at National Australia Bank in London.
Even if the restructuring credit event is dropped as a standard trigger in the inter-dealer broker market, derivatives houses will still be able to quote prices to their clients, explained Douglas Kerridge, principal at Bank of America in London. He added, BofA's loan portfolio is in favor of keeping the restructuring credit event as a trigger.
