All of Dana Corp.'s 13 bond issues will be included in the International Swaps and Derivatives Association's protocol to cash settle index credit default swap trades on the name. The protocol will exclude single-name CDS.
A source working on the protocol said its creation is running smoothly, adding that ISDA's experience in creating several past protocols is helping to speed its progress. Bankrupt names that ISDA has created protocols for include Collins & Aikman, Delphi Corp. and most recently, Calpine Corp. The Dana protocol will be similar to Calpine Corp.'s, said an ISDA spokeswoman.
There are about $2 billion of Dana bonds available to physically settle CDS contracts, according to a JPMorgan report. There was also $2 billion face value of Delphi bonds available for physical settlement, according to the bank. The report adds that Dana's credit event was anticipated and largely priced into CDX indices at the time of default.
Unlike Calpine's protocol, there is no controversy about which obligations will be included in the protocol. In the case of Calpine, adherents were able to deliver a single-name 6% convertible note due 2014 (CIN, 1/06), which caused some controversy among investors, according to the source. This note was included because it contained non-standard subordinated language.
The exclusion of single names in the protocol will not cause much disruption because the number of index trades is four times the number of single name trades, according to the source. Dana's bonds traded up only a couple of points after it filed for bankruptcy. This was partly caused by investors collecting bonds to deliver for single name CDS. According to the JPMorgan report, Dana is in numerous bespoke portfolios, which fall outside the scope of the protocol. The bank expects Dana is in more bespoke portfolios than Collins & Aikman or Calpine, but less than Delphi.