22 November 2018

ISDA - CSC statement on German bank CDS

This note has been prepared by ISDA’s Credit Steering Committee (CSC) to explain the CSC’s recommendation for changes to documentation practice for credit default swap (CDS) transactions referencing German banks.

From 21 July 2018, a change in law allows German banks to issue two types of senior unsecured debt obligations – senior preferred and senior non-preferred. This is similar to the position in other EU countries, for example equivalent French law for French banks.

This law change confirms that senior debt obligations issued by German banks prior to 21 July 2018 rank pari passu with senior non-preferred debt obligations issued on or after 21 July 2018.

As a result, CDS contracts on a German bank with a Reference Obligation (including a Standard Reference Obligation) where the Reference Obligation was issued either (a) prior to 21 July 2018 as a senior debt obligation or (b) on or after 21 July 2018 as a senior non-

It is proposed that the trading convention for single-name and index CDS referencing a German bank at the senior non-preferred level and documented under the 2014 ISDA Credit Derivatives Definitions (the “2014 Definitions”) use the “Standard European Senior Non Preferred Financial Corporate” Transaction Type, from a future date to be agreed.

This will recognize that German bank debt can now be issued at two senior levels, and allow firms to trade German bank CDS on both senior preferred and senior non-preferred.

Full note

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