Dealers to launch standardised loan CDS documentation

Since November 2005, a number of major dealers and buy-side firms have been developing the documentation for first, second and third lien syndicated secured loan CDS trades in the North American market.

Both the International Swaps and Derivatives Association and the Loan Syndications and Trading Association (LSTA) have been actively involved in the development of the documentation.

The new confirm is callable only if there are no longer any loans of the designated seniority trading in the market. Lien priority is to be determined based on a poll of dealers, while revolvers and other unfunded commitments will be accepted as deliverables under a new convention.

Some market participants have already begun to trade under the new-style contract language. The dealers that have developed the confirm believe its widespread adoption will prompt development of secondary derivatives such as loan CDS index products.

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