CDDC: The investor panel behind default rulings

Russia’s slip into default was confirmed by a little-known panel of financial firms whose rulings on debt truancy by countries and companies trigger the payment of insurance to creditors.

– Panel of financial firms –

Based in London, the Credit Derivatives Determinations Committee (CDDC) is made up of 15 leading banks and financial firms that field requests from investors who want to know whether a missed debt payment constitutes a “credit event”.

The panellists are chosen on the basis of the volume of their activity on derivatives exchanges for dealers and experience on the market for non-dealers.

The current members are Bank of America, Barclays, BNP Paribas, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Mizuho Securities, AllianceBernstein, Elliott Management, Citadel and Pacific Investment.

ICE Clear Europe and LCH, as depositories, are observer members.

The CDDC was created by the International Swaps and Derivatives Association, a trade body for the participants of the over-the-counter derivatives market.

It was the Europe-Middle East-Africa regional committee of the CDDC that considered whether Russia had defaulted.

Ratings agencies usually declare whether a country has defaulted on debt, but they were barred from doing so under Western sanctions against Russia over the war, making the CDDC the key arbiter regarding Moscow’s debt.

– Declaring a ‘credit event’ –

Meetings are held if a lender signals a possible “credit event”, such as a payment default, although committees may decide to examine cases themselves.

A super-majority of 80 percent is needed to decide to review a case.

The rulings are based on information provided by market participants.

Its decisions can trigger the payment of credit default swaps, a sort of insurance against a bond issuer defaulting.

The CDDC website says the role of the committee is “to apply the terms of market-standard credit derivatives contracts to specific cases, and make factual determinations on Credit Events, Successor Reference Entities and other issues”.

The CDDC declared that Russia was in default in June.

– The Russia ruling –

Russia was unable to honour its debt after Western sanctions over its invasion of Ukraine made it a pariah in the global financial system, with Washington cutting Moscow’s last avenue to pay lenders in dollars in May.

Investors who submitted the question to the CDDC provided two news articles to document concerns by numerous bondholders on whether or not the situation amounted to a default.

The committee accepted the case on May 26 and issued a ruling on June 1, with 12 members voting that Russia had failed to pay and a “credit event” had taken place. Only Citibank voted “no”.

It held off making a determination whether to activate the settlement of credit default swaps taken out on the debt, citing the need to study new sanctions.

After Washington waived certain sanctions, it decided in August to proceed with an auction and began a process that resulted in an auction Monday to determine the amount to be paid to CDS holders.

CDS holders will receive around 44 cents for each dollar of insured debt. — Agence France-Presse