Revue de Droit des Affaires Internationales

August 28th, 2012 → 11:19 am

Credit default swaps (“CDS”) and the International Swaps and Derivatives Association (“ISDA”) have been centre stage in the past two years as the European Central Bank (“ECB”) and Eurozone governments insisted that any restructuring of Greece’s debt must be “voluntary”.

Indeed, while the restructuring of Greece’s debt has been on the agenda since 2010, a constant feature through it all was to avoid a Greek default via the negotiation of a so-called “voluntary” restructuring. Undoubtedly, one key reason lay in the desire of the European Union and its Member States that no Eurozone Member State suffer a disorderly default, with the potential chaos and contagion that such an event might trigger, including, perhaps, the implosion of the Eurozone. Another important reason often mentioned, but rarely explored beyond mere pronouncements, stemmed from the fact that a Greek default would trigger credit default swaps on Greek debt, forcing a cascade of banks and other financial institutions that sold CDS on Greek debt to pay up, with potentially adverse systemic consequences to the banking system. Indeed, it was feared that triggering CDS on Greek debt might demonstrate the potential systemic weaknesses of CDS (that is, the fact that hedging is imperfect and, thus, all CDS may not pay) and could cause credit markets to freeze. The ECB was also concerned that triggering CDS might encourage speculation against Eurozone sovereign debt.

Revue de Droit des Affaires Internationales

October 20th, 2011 → 11:53 am

The “subprime” financial crisis that the United States has been facing since mid-2007 has had a significant impact on the economy of the country, from the most humble home-owners to the most powerful private equity funds (PEF). While mergers and acquisitions in the United States were at their highest historical level in 2007, boosted by foreign investments and the capital and credit (then) available to PEFs, the newly prevailing financial conditions in effect in the US have contributed to the failure of many acquisitions, even after the ink had dried up on contracts. In effect, many “firm” contracts seem to have turned into mere purchase options that the purchasers decided to terminate, either because the prospects of the target dimmed or the financing of the acquisition turned out to be more complex than initially contemplated.

Revue de Droit des Affaires Internationales