"What the Novo Banco CDS Decision Tells Us" by Jennifer Grady, Jon Kibbe, Julia Lu and Richard Lee

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February 29, 2016

Following a period of significant debate and anticipation, buyers of credit default swap (CDS) protection on the Portuguese bank Novo Banco S.A. recently learned that their CDS contracts did not protect them against the type of event many expected would have resulted in market-wide protection payments. The transfer by the Bank of Portugal of senior bond obligations of Novo Banco S.A. to its ailing predecessor, Banco Espírito Santo S.A., did not trigger a Governmental Intervention Credit Event (GICE), according to the International Swaps and Derivatives Association credit derivatives determinations committee.

In this client alert, Richards Kibbe & Orbe attorneys Jon Kibbe, Jennifer K. Grady, Julia Lu and Richard J. Lee examine the GICE provision and the facts giving rise to the Novo Banco controversy. Additionally, they analyze the external review panel’s determination that no GICE occurred and note the broader implications of the decision for the CDS product in general.

Please click here to read the client alert.