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Narrowly-tailored credit event: Difference between revisions
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Hovnanian intentionally withheld a debt payment to an [[affiliate]] as part of a non-stressy refinancing. Though it was financially sound and ''able'' to make the payment, as a “[[Reference Entity]]” in the argot of the [[2014 ISDA Credit Derivative Definitions| credit derivative definitions]] not doing so would technically constitute a [[failure to pay]] — a [[credit event]], by any lights, although a false flag in the context of [[credit derivatives]], which are meant to track credit deterioration. | Hovnanian intentionally withheld a debt payment to an [[affiliate]] as part of a non-stressy refinancing. Though it was financially sound and ''able'' to make the payment, as a “[[Reference Entity]]” in the argot of the [[2014 ISDA Credit Derivative Definitions| credit derivative definitions]] not doing so would technically constitute a [[failure to pay]] — a [[credit event]], by any lights, although a false flag in the context of [[credit derivatives]], which are meant to track credit deterioration. | ||
This could trigger the unwind of credit protection, market disruption, panic on the streets and a slew of [[tedious]] [[silver circle law firm|silver circle]] client bulletins<ref>But nowhere near so [[tedious]] as their mountainous bulletins on [[regulatory margin]]. Enough already guys!</ref> | This could trigger the unwind of credit protection, market disruption, panic on the streets and a slew of [[tedious]] [[silver circle law firm|silver circle]] client bulletins.<ref>But nowhere near so [[tedious]] as their mountainous bulletins on [[regulatory margin]]. Enough already, guys!</ref> | ||
The answer was to build into the [[failure to pay]] definition the requirement for “credit deterioration”. This is what the [[2019 Narrowly Tailored Credit Event Supplement to the 2014 ISDA Credit Derivatives Definitions]], which can be retrofitted to older models by means of the [[ISDA 2019 NTCE Protocol]], does. Implementation date expected to be 13 January 2020. | The answer was to build into the [[failure to pay]] definition the requirement for “credit deterioration”. This is what the [[2019 Narrowly Tailored Credit Event Supplement to the 2014 ISDA Credit Derivatives Definitions]], which can be retrofitted to older models by means of the [[ISDA 2019 NTCE Protocol]], does. Implementation date expected to be 13 January 2020. | ||