Milbank LLP organized and advised the “CDS Improvement Committee,” an ad hoc group of credit default swap (“CDS”) market participants (including, among others: Apollo, Ares, Blue Mountain, Brigade and CQS) which was central to the development of the International Swap and Derivatives Association Inc.’s (“ISDA”) proposal published March 6 addressing issues relating to “Narrowly Tailored Credit Events” under the 2014 ISDA Credit Derivatives Definitions. If adopted, the proposed revision would remove the incentive for CDS buyers to enter into agreements that would “manufacture” failure to pay Credit Events not related to a deterioration of the borrower’s creditworthiness or financial position.
The Committee, composed of many of the firms most active in the CDS market, began work in March of 2018 and made its first set of proposals to ISDA in May. The Committee then collaborated with the other firms in ISDA’s working group to craft the final proposal, which included many of the Committee’s original suggestions. The Committee members’ early investment of time and analysis should help to ensure the smooth implementation of ISDA’s important proposal.
The Milbank team advising the CDS Improvement Committee was led by Derivatives partner John Williams and included associates Elizabeth Martinez and Ben Kastner.
Mr. Williams said: “This is a carefully calibrated effort to balance rule-based precision with principles-based discretion. If implemented, the proposal should engender greater comfort that the CDS contract.
