UBS is sole successor to Credit Suisse’s CDS, swaps panel rules
THE panel which oversees the credit default swap (CDS) market has ruled that UBS Group will become the reference entity for Credit Suisse Group’s contracts.
The Credit Derivatives Determinations Committees said that UBS is the “sole successor” to Credit Suisse, according to a notice on its website on Monday (Jul 17). The decision comes almost four months after the Swiss government brokered a deal for UBS to take over its beleaguered rival.
A market participant had asked the question after the completion of the deal last month, which saw UBS assuming all of Credit Suisse’s debt obligations. A further question was made to clarify which obligations could be deliverable at the subordinated level.
Since the takeover was announced in March, investors started betting that the price of Credit Suisse and UBS contracts would eventually converge, pocketing the difference. Credit Suisse’s five-year senior contracts were indicated at 89 basis points as of 8.37 am in London, down from over 900 basis points in mid-March according to ICE Services data. UBS’ equivalent swaps were indicated at 91.8 basis points.
The decision also marks the end of speculation that the Credit Suisse contracts could have triggered a payout. In May, the panel ruled twice against calling a credit event over Credit Suisse, following the wipeout of US$17 billion of Additional Tier-1 bonds and the UBS takeover.
The net notional volume of Credit Suisse’s swaps outstanding amounted to US$1.7 billion as of May 12, according to data from the Depository Trust & Clearing Corporation.
Eleven participants on the panel agreed that UBS becomes the reference entity for Credit Suisse’s CDS, while there were no votes against. Credit Suisse abstained, under the panel’s rules, from taking part in the committee. BLOOMBERG
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