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Subject: Update on G6 Discussions


Dear All,

Following Monday's End User call, we reported back to the ISDA G6 committee with the feedback of those on the call to Blythe Masters' recent email addressed to the G6 members. Having stated that the views of our group are that the Restructuring definition needs to be modified and that the End User proposal for a new definition needs to be given due consideration, it was apparent that, at this stage of the current G6 process, we are not going to be able to reach a consensus on a new definition and that, given this fact, attempts should be made to foster the adoption of the European Modified Restructuring Supplement in Europe. To date, notwithstanding efforts of the end users to address what are very valid concerns with the existing definition, we cannot reach a point where all interested groups participating in the G6 process can agree on a solution that protects all parties' interests. Further, we received feedback from the other constituent representatives that, notwithstanding the position stated by signatories in the Open Letter, deals are clearly actively being traded in the market by end investors with Restructuring as one of the specified credit events, with no significant price differential. Thus, the feeling on the part of the bank hedgers and dealers is that the definition does not need to be addressed at this juncture and that the initial momentum generated by this letter has, to an extent, dissipated.

When asked what steps the dealers would take in order to attempt to enhance liquidity of a No Restructuring CDS market, the view that was expressed was that it is the end users that can contribute to the development of this market either by not providing quotes for Restructuring or by providing significant adjustments to their quotes for CDS with Restructuring.

Our view is that it is clear that the definition will not be revised during the present talks and that active steps will be taken in order to implement the Modified Restructuring at least in Europe. As far as adopting the European Modified Restructuring as a global standard is concerned, there is clearly a great deal of resistance from the US dealers to this proposal. We would also welcome your thoughts on whether the adoption of the European Modified Restructuring supplement (as currently drafted) on a global basis is feasible.

Given the absence of room for negotiation, we believe that the best we can achieve is to move ahead with the adoption of the modified restructuring supplement for Europe, subject to an undertaking from the ISDA G6 to set up immediately a special working group to work on revising the definition of Restructuring. By so doing, we can provide a signal to the market that we do not believe that the current concerns with the definition have been addressed.

As ever, we would like to solicit your feedback to the above in advance of next Tuesday's G6 call. We urge you to either email us your comments or call us by noon New York time on Monday.

Kind regards,

Tracy and Pascale


Tracy: + 415 597 2605

Pascale: + 33 (1) 40 49 97 19 //

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