The fate of Ardagh CDS contracts will have to be decided by an external review panel, after the EMEA Credit Derivatives Determinations Committee failed to deliver a decision on a credit event for the first time in seven years.

The DC has been sitting for over two weeks on a 7 October ‘general interest question’ asking if Ardagh had triggered a restructuring credit event. Today (21 October), after several delays, the committee held a binding vote and drew a split decision.

“As there was no Supermajority, the External Review process in Section 4 of the DC Rules is triggered in respect of the Restructuring DC Question,” it stated.

In the event, Bank of America, Barclays and Mizuho joined BNP Paribas — which alone had voted ‘yes’ to the last credit event question on Ardagh. That pitted these four dealers against the other seven DC panel members.

Buysiders and lawyers 9fin has spoken with believe this suspected outcome has been behind the DC delay. That in itself has been a source of frustration for some market participants, since Ardapac five-year CDS has been moving wider during this time, out from 15 points up front to 19.25 PUF today, according to IHS Markit/S&P — with 0.75 points of that move today.

An external review should ensure a neutral forum for the credit event question, but the worry is how much more time it will require to resolve CDS contracts. Ardagh is an unprecedented situation in which all deliverables could effectively disappear during the restructuring — see our webinar in which we discuss the topic in depth.

On the other hand, the restructuring itself looks at risk of being held up by holders of its PIKs, including Deutsche Bank and Carronade Capital, as the Financial Times reported.

“At the very least, this could prolong the process and bring the subordinated notes back into play, though the market still sees that as a low-probability outcome,” said one buysider. “The company could, in theory, use a UK scheme to coerce the PIK holders, since the PIKs sit in a different entity to the seniors and subs. But that would almost certainly trigger litigation and risk delaying the restructuring indefinitely. More likely, the PIK holders are pushing for better economics — and that means the senior and subordinated creditors may have to give up some equity to get the deal across the line.”

Another buysider noted that Deutsche Bank blocking the deal through the PIKs would also help with deliverable removal. “Hence the CDS is wider,” they added.

It appears as no coincidence that, behind the scenes, the DC has quietly updated the members of the external review panel, which would be required to adjudicate on Ardagh if dealers sitting on the committee are unable to reach a supermajority decision regarding the credit event trigger question.

This is the first time it has amended the external review page since 2020, when it mentioned the unfortunate passing of one of the members.

The last time it updated the members list was in 2018. The DC required the external review process that year in the case of Sears Roeback Acceptance Corp (SRAC), after failing to agree in October on a market participant’s challenge to the deliverable obligation list. The resulting delay carried the SRAC auction over into January 2019.

Before that, an external review panel decision was required for Novo Banco and Caesar’s Entertainment in 2015 — details of which can be found here and here.

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