And specifically, in the Isda Credit Derivatives Determinations Committees section:
There’s about $4.15bn worth of (net notional) CDS on Ireland, according to the DTCC.
Update: For reference, the request was submitted anonymously, and it centers on the subordination issue in Ireland’s IMF loan. That’s the (basic) idea that the loan effectively places the IMF ahead of Irish bondholders in the payment queue.
(Which of course, you would have been expecting if you’re an FT Alphaville reader.)
And here are the published details from the Isda website:
On 18 January 2011 the first drawdown (5.8B EUR) of the IMF loan to the Republic of Ireland occurred (see http://debates.oireachtas.ie/dail/2011/01/20/00067.asp under Point 78).
The IMF certainly enjoys de facto preferential creditor status in accordance with its status as an International Financial Institution and the IMF has claimed preferential creditor status with regards to their loan to the Republic of Ireland – see the press conference transcript (http://www.imf.org/external/np/tr/2010/tr120210.htm) and the pg 100 of the IMF report (http://www.imf.org/external/pubs/ft/scr/2010/cr10366.pdf).
In the event that the Republic of Ireland is unable to meet its financial obligations at some point in the future no one denies that the IMF loan will be repaid first or that bondholders will not receive scheduled payments if the IMF loan is in arrears. From a practical perspective the existing Irish bonds have become subordinated to the IMF loan.
The formal requirements of the ISDA Credit Derivative Definitions require that a change in the ranking in priority of payments causing the Subordination of an Obligation (in this case any bond issued by Ireland under domestic law) to the IMF loan is announced by the Republic of Ireland in a form that binds all holders of the Obligation. There are three important criteria that must be met i) there must be a change in the ranking in priority of payment; ii) the change must bind all holders of the subordinated obligation; and iii) the change in the ranking in priority of payments must cause a Subordination which means that there exists a contractual arrangement providing that A) upon liquidation, dissolution, reorganization or winding-up of the Republic of Ireland claims of the IMF will be satisfied prior to claims of the bondholders or B) the bondholders will not be entitled to receive or retain payments in respect of their claims against the Republic of Ireland at any time that the Republic of Ireland is in payment arrears or is otherwise in default under the IMF Loan…
CDS triggers are governed by the Isda definitions — which include a bunch of conditions that need to be satisfied to trigger the payouts, so there’s not necessarily a clear-cut answer on this one — hence the request for an Isda opinion, presumably.
Will Isda definitely be opining on this? Why yes, they will.
