European lawyers and credit pros are working on another modification to the International Swaps and Derivatives Association restructuring definition. The focus is on transferability of loans and the deliverability of the restructured obligation, according to Richard Williams, head of credit derivatives at Abbey National Financial Products and the European buyers of credit protection representative on ISDA's group of six committee. Once this definition has approval from the European regulators the credit players will pitch it to U.S. dealers and end users in an attempt to get one global definition.
In the last couple of months there have been several adjustments to the standard credit derivatives contract, such as dropping the obligation acceleration credit event and these have sparked renewed interest in getting one set of ISDA credit definitions, according to lawyers and traders.
The proposal is to extend the maturity of the restructured obligation from two-and-a-half years. In the modified restructuring definition, used in the U.S. market, if the corporate restructures its debt to have a five-year maturity it cannot be delivered in the event of a default, said one head of credit derivatives. The buyer of protection can only hand over debt of less than 30-months, which is often in short supply. This may leave the buyer of protection without protection for the original asset.
At the moment, protection buyers can only deliver a loan if it is freely transferable to a wide range of institutions, such as banks and insurance companies, according to credit traders. However, European players are arguing that this is too liberal and many borrowers will not agree to it. They are pitching that the loan should be delivered with the consent of the borrower, as long as that consent is not unreasonably withheld.
