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Dan Alderson

Atos SE has triggered a credit event on CDS contracts, making it the first company in Europe for almost a year to do so. And the decision this time was a lot faster in coming than in the 2023 Casino Guichard-Perrachon case, sources noted.

The EMEA Credit Derivatives Determinations Committee initially met on Friday and today (Tuesday) at 2pm London time ruled Atos has triggered a bankruptcy credit event.

It ruled in response to a general interest question seeking to apply Section 4.2(d) of the 2014 Credit Derivatives Definitions. This was after the French IT company announced via a press release on Wednesday it had entered accelerated safeguarding (sauvegarde) proceedings.

But in making its unanimous decision, the DC panel went beyond info supplied in the question and press release to also reference filings with the Commercial Court of Nanterre. This allowed it to draw comparison with other past credit events in Europe.

“The EMEA DC has previously considered safeguard proceedings in respect of (i) Rallye SA and concluded that such proceedings constituted a Credit Event pursuant to Section 4.2(d) of the 2014 Definitions; and (ii) Thomson SA which was also a Bankruptcy Credit Event,” wrote the DC in explaining its unanimous decision on Atos. “The EMEA DC also considered safeguard proceedings as a point of comparison in relation to Abengoa S.A., Thomas Cook Group plc and Matalan Finance plc.”

Key features of such safeguarding proceedings in the past have been restrictions on creditors' rights — ie a freeze on debt payments — as well as accelerating debt and enforcing security, together with creditor filing requirements (proofs of claim must be filed within two months of the opening of court proceedings).

"I note with interest that the DC has taken the liberty of using documents that were not provided as publicly available information and that it has also taken quite a lot of discretion to establish that the accelerated safeguard proceedings constituted 'similar relief' for the purposes of Section 4.2(d),” said Carlos Pardo, an independent CDS specialist who advises on credit events. “It is inevitable not to compare this to the Casino bankruptcy decision as neither of them were black or white and required interpretation by the DC.”

This is the first such credit event decision a DC has had to make since they came under scrutiny in an independent review launched at the end of 2023 by the International Swaps and Derivatives Association. There had been criticism of some previous DC decision-making, particularly after the EMEA committee faced down numerous market participant attempts to trigger Casino CDS. That decision took over a month.

There was some confusion among market participants over the weekend about the Atos deliberation, as the DC posted an enigmatic update on Friday.

The DC is yet to schedule a credit event auction to settle Atos CDS, but has determined that the credit event occurred on 18 July 2024, “being the date on which the Reference Entity requested the opening of the accelerated safeguard proceedings”.

Holders of protection will be confident of a big payout on their contracts. Five-year Atos CDS has widened to nearly 90 points up front, pricing an expected recovery of around 10 cents on bonds, although some sources believe this could be in the low single digits. The company's 1.125% April 2026 notes have traded as low as 6.5 cents in recent sessions, and are priced around 7.25 today.

Atos is no longer a constituent of the iTraxx Crossover index, having dropped out in this year's March roll from series 40 to S41. But it still has relevance as a default for investors in off-the-run series or their tranches.

Moreover, market participants suspect Atos could head a wave of CDS trigger questions in Europe. Four of those CDS names under discussion as potential credit events are still part of iTraxx Crossover — Altice France and Altice International (which are referenced by Altice France and Altice Finco CDS), as well as Ardagh and Intrum.

As such, Atos has been very closely watched by holders of those companies' bonds and CDS, as well as traders of the Crossover index and tranches — even if they don't personally have exposure to Atos.

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Atos ruled as credit event in Europe's first CDS trigger since Casino

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