ISDA proposes CDS “Failure to Pay” definition amendment

Following the Hovnanian fiasco last year (see Leigh Ferris’ piece in GMFI and David Ampaw’s restructuring-eye view of “manufactured credit events”), ISDA has started consulting (until 27th March) on a proposed amendment to the “Failure to Pay” definition in paragraph 4.5 of the 2014 credit derivatives definitions (and an associated guidance note) so that the failure must “result from, or result in, a deterioration in the creditworthiness or financial condition of the Reference Entity”. This principle is obviously right, but it does create room for argument in some cases, and that means more work for the determinations committee, which is less desirable, but perhaps the uncertainty is unavoidable.