Credit event overview

Indra Rajaratnam

11.1 INTRODUCTION

The previous chapters examined the technical aspects associated with the structural features of a CDS, and the risks arising therefrom. Our expedition now migrates to contingent events, namely credit events, which give rise to settlement under a transaction and successor determinations.

This chapter begins with an outline of the credit events that are contemplated under the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b) and sets out some considerations that need to be taken into account where a deviation from the standard trading conventions may be necessary for a particular transaction. The importance of a reference entity’s legal name, interpretation challenges in the context of credit event determinations and the impact of insufficient information to evidence a credit event are also highlighted. The common terminology used within the definition of certain credit events, and the “seller risk provision” that allocates non-credit-related risks to a seller, are also examined to set the background for the discussions in subsequent chapters. At the end of the chapter

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