CDS pricing in loan agreements

In recent loan agreements, a new trend has developed of tying the pricing of loans to a borrower’s CDS price spreads. This new trend represents a paradigm shift for lenders by employing a market-based pricing technique for loans rather than relying on internal pricing models. According to Isda, the notional value of the CDS market increased from $632 billion in 2001 to over $54 trillion at its peak at mid-year 2008. However, this figure decreased to $38.6 trillion at year-end 2008. Given the

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