"LCDS give many investors that could not previously access the leveraged loans market an opportunity to gain exposure to the asset class,” said Schüler, adding that the instruments' settlement was “quick and easy" in comparison to loans.
“Correlation desks and portfolio managers are very keen on adding new names to their portfolios, particularly higher yielding ones," claimed Schüler.
The documentation for LCDS is based on the standard CDS documentation. “Probably the biggest difference compared to regular CDS is that European LCDS will terminate when all underlying loans are refinanced. Also, a credit event ‘release of security’ has been added where the affected loans cannot be delivered through,” explained Schüler.
Inter-dealer brokers Tullett Prebon and GFI have reported seeing LCDS being quoted more frequently in the Street.
The week in Risk.net, February 10-16 2017Receive this by email
- UK banks face increased XVA burden after ring-fencing
- Operational risk in financial services: Navigating risk management challenges in an uncertain world
- Three Japanese banks consider new CVA approach
- Uniform EU stress test backed by CCPs and banks
- EC to miss Mifir equivalence deadline for share-trading venues