The Blackstone Group's USD20 billion leveraged buyout of real estate investment trust Equity Office Properties turned the spotlight again on market participants pushing for cancelable contracts in the event of credit-default swap orphaning. The REIT's BBB-rated 4.75% bonds due in 2014 are also referenced in the CDX Series 7, so a swathe of investors has exposure to the name.
The value of CDS on the REIT immediately following the announcement remained stable, but traders reported concern contracts may soon be worthless if the trust goes ahead with plans to tender all outstanding bonds. Pure cash investors are likely to cash out if a high consent solicitation fee is offered.
The International Swaps and Derivatives Association has taken up the broader issue of succession events and is working on updating the 2003 credit definitions to address the problems (DW, 5/5).
