The International Swaps and Derivatives Association (ISDA), the industry group that oversees derivative contracts, recently ruled that holders of credit-default swaps (CDS) on iHeartMedia Inc. can now collect following an unorthodox financial maneuver by the struggling media company.
Weighed down by $20.4 billion in debt, the radio station and billboard operator made an unusual move last week. It paid $193 million due to its bondholders while skipping a $57 million installment on separate bonds issued by the company but held by its asset-rich subsidiary, Clear Channel Holdings. ISDA then determined that this unusual non-payment was a "credit event" and triggered CDS tied to the company.
In the Wall Street Journal article, RK&O partner Julia Lu discusses how a credit event benefits iHeart by removing of credit protections purchased by investors in its debt, explaining that "A lot of debt holders now have CDS, so their incentive in how their debt is to be worked out is affected by their interest in the CDS, the issuers have become aware of the CDS protections and the role of CDS in the restructuring efforts".
To read the full article, please click here.
Lawyers disagree over iHeart CDS trigger - Risk (Subscription Required)