The International Swaps & Derivatives Association said its determinations committee will rule on whether credit-default swaps linked to Argentina have been triggered by a failure-to-pay credit event.
The committee will meet tomorrow at 11 a.m. in New York and a decision that an event has occurred would lead to payouts on all contracts, according to ISDA’s rules. A total of 2,652 contracts insuring a net $1 billion of Argentina’s debt were outstanding as of July 25, according to the Depository Trust & Clearing Corp.
Swiss bank UBS AG asked for the ruling after the government missed a deadline yesterday to pay $539 million in bond interest payments. Argentina would be the first nation to trigger payouts on default swaps since Greece restructured its debt in 2012.
“CDS are likely to be triggered,” Casey Reckman and Daniel Chodos, analysts at Credit Suisse Group AG in New York, wrote in a note to investors today.
Argentina’s 8.28 percent dollar bonds due December 2033 fell 6.84 cents to 88.7 cents on the dollar at 10.20 a.m. in New York.
Argentina’s bonds are the world’s most expensive to insure, according to data compiled by Bloomberg. It costs $4.2 million in advance and $500,000 annually to insure $10 million of Argentina’s debt for five years, according to data provider CMA. That signals a 79 percent probability of default within that time and compares with $3.1 million in advance yesterday.
The trades will be settled at auction if a credit event is declared. ISDA’s determinations committee was formed in 2009 to standardize the settlement process and makes binding decisions for the market on whether contracts can be triggered.
The $1 billion of protection on Argentina’s debt compares with about $3 billion for Greek bonds when they were triggered in 2012 and $20 billion on Italy’s as of last week.