Dura Operating Corp's bankruptcy will serve as the first test for The International Swaps and Derivatives Association's new credit defaults swap protocol. The protocol will apply not only to index trades, as with previous protocols, but also to bespoke tranches, single-name CDS and other vanilla products, according to dealers. It will provide for physical settlement of market orders and accommodate cash settlement, promoting transparency by publishing information about participants, prices, auction results, open interest and penalty bids.
ISDA convened a customer-dealer call this morning to discuss the proposed timeline for settlement of the bankruptcy filing. The protocol may be implemented as early next week, said Louise Marshall, spokesperson at ISDA.
Dura put a bankruptcy filing package in place at the end of last week, with debtor-in-possession financing in place from Goldman Sachs. Dura's formal filing comes a few weeks after it missed a bond interest rate payment.
The ISDA effort to standardize settlement mechanics grew out of lessons learned from individual protocols for each of the past year's defaults, dealers added.
