Governmental intervention and contingent convertible capital instruments

Indra Rajaratnam

16.1 INTRODUCTION

This chapter focuses on governmental intervention. In the first section of the chapter, the events that precipitated the introduction of governmental intervention as a new credit event under the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b), and the differences between a governmental intervention and a restructuring, are explained. The chapter then discusses the integral conditions that give rise to a governmental intervention. In this section, the determinations of the external review panel in the Novo Banco SA Deliberation (Governmental Intervention) are drawn into the discussions for an insight into the interpretation of some of the conditions relating to governmental intervention. The chapter concludes with a brief discussion on contingent convertible capital instruments (CoCos), and describes how the operation of the 2014 CoCo Supplement to the 2014 ISDA Credit Derivatives Definitions (the “CoCo Supplement”), when incorporated into the terms of a transaction can give rise to a governmental intervention.

16.2 CREATION OF A NEW CREDIT EVENT

“Governmental

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