Credit Suisse faces questions over "governmental intervention credit event" - Trade Oracle

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Credit Suisse faces questions over “governmental intervention credit event”

Credit Suisse is facing questions over whether a “governmental intervention credit event” occurred, after the Credit Derivatives Determinations Committee (DC) accepted to investigate the matter. The DC in Europe now has to determine the specifics of the subordination of Credit Suisse’s additional tier-1 (AT1) bonds, according to the DC website. This comes after the Swiss regulator decided to value Credit Suisse’s AT1 bonds, worth $17 billion, at zero, as part of its takeover by UBS Group AG.

Credit Suisse’s AT1 bonds valued at zero

Credit Suisse’s AT1 bonds, with a notional value of $17 billion, were valued at zero by the Swiss regulator as part of its takeover by UBS Group AG. This move angered some holders of the debt, as it essentially wiped out the value of their investment. The decision to value the bonds at zero is what has led to questions over whether a “governmental intervention credit event” occurred, which could trigger payment of default insurance known as credit default swaps.

Credit Suisse’s subordinated debt in question

The DC in Europe will now investigate the specifics of the subordination of Credit Suisse’s AT1 bonds. The subordination of debt refers to the order in which different creditors get paid in the event of a default. The DC will have to determine whether the Swiss regulator’s decision to value the bonds at zero constitutes a “governmental intervention credit event” and whether it triggers payment of credit default swaps.

The role of the Credit Derivatives Determinations Committee

The Credit Derivatives Determinations Committee is a group of market participants that decides whether a credit event has occurred, which could trigger payment of credit default swaps. Credit default swaps are a type of insurance against default on debt payments. The DC will investigate the specifics of Credit Suisse’s case and determine whether a “governmental intervention credit event” occurred, which would trigger payment of credit default swaps.

Conclusion

Credit Suisse is facing questions over whether a “governmental intervention credit event” occurred, after the Swiss regulator valued the bank’s AT1 bonds at zero as part of its takeover by UBS Group AG. The Credit Derivatives Determinations Committee in Europe will investigate the matter and determine whether a credit event occurred, which could trigger payment of credit default swaps. The subordination of Credit Suisse’s debt is also in question, as the DC will have to determine the order in which different creditors get paid in the event of a default.

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