ISDA gives its verdict on Noble Group CDS

The International Swaps and Derivatives Association (ISDA) committee tasked with making a ruling on the tussle over Noble Group’s credit-default swaps has issued a verdict that could halt attempts to settle the derivatives contracts bilaterally.

In a statement on Tuesday, the committee – which is made up of representatives of banks and investors – said that attempts to trigger the contracts bilaterally are only valid if backed up with supporting documentation.

The widespread confusion over whether sellers owe money to buyers of credit protection is unusual, as the CDS market has relied on the rulings of ISDA’s “determination committees” since 2009 to decide when a company is in default.

While Noble Group has not formally defaulted on any debt, buyers of CDS claim that a recent extension to loan repayment terms amounted to a debt restructuring — which can also trigger payouts.

Last month the ISDA committee responsible for deciding on the status of Noble’s debt said it was unable to determine if the loan extension qualified as a restructuring, as they were unable to obtain the loan’s underlying documentation. It is the first time a committee has dismissed a question of default without ruling either way.

ISDA’s inability to rule stems from the lack of clarity over whether Noble Group Limited – the reference entity for credit derivatives contracts – has provided a guarantee to the loan facility in question.

The statement on Tuesday said that any attempts to trigger the CDS that does not contain publicly available information confirming that there is a “Qualifying Guarantee” from this entity are “invalid and ineffective”.

The ISDA ruling said that it “deliberately limited” its focus on this issue of guarantees, however, with no ruling on what other elements CDS holders could supply publicly available information on to try and trigger the contracts bilaterally.

“No inferences should be drawn from the fact that the DC’s determination does not cover these points,” the statement added.

The ISDA committee also dismissed a question asking for it to again make a ruling on whether a credit event had occurred.

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