Sunday, May 26, 2019

Confining Lenders With CDS Positions

As it’s a holiday weekend, I’ll be brief and flag for readers one of the most intriguing news stories – given my research interests - that I came across this past week.  In Sirius Computer moves to block derivatives holders from speculation, Kristen Haunss notes:

Language in the financing package backing Sirius’ buyout by private equity firm Clayton, Dubilier & Rice (CD&R) prohibits lenders that own derivative positions from voting on company matters, according to three sources familiar with the loan credit agreement. As investor activism rises, the borrower wants to prevent these holders from declaring a default that could pay off for their hedged trades.

It’s an interesting move to limit potential strategic behavior by lenders with CDS positions.  The story notes that additional such limitations could be seen in the future.  If you want to learn more about recent cases of such strategic lender behavior, a great place to start would be Gina-Gail S. Fletcher’s Engineered Credit Default Swaps: Innovative or Manipulative?, which will be published in the New York University Law Review.

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