The EMEA Credit Derivatives Determination Committee (CDDC) will meet on Friday to discuss whether a bankruptcy credit event occurred at Credit Suisse after regulators wiped out the bank’s junior bondholders in a state-assisted merger with UBS. This question was raised by an investor on Thursday.
A credit event, if confirmed by the CDDC, could trigger a payout on credit default swaps which insure against losses from exposure to corporate or sovereign debt. On Wednesday, the CDDC ruled in response to another question that a Governmental Intervention credit event had not occurred, closing down one of the ways CDS holders were pursuing to secure a payout.
The Credit Suisse merger upended a long-established practice of giving bondholders priority over shareholders in a debt recovery, triggering hundreds of lawsuits. The outcome of the CDDC meeting will be closely watched by investors and market participants.