ISDA publishes amended LCDS Protocol for 2007

By Angela McDaniels

Seattle, July 24 - The International Swaps and Derivatives Association, Inc. amended its LCDS Protocol to adopt the new form of Syndicated Secured Loan Credit Default Swap Physical Settlement Rider published by the Loan Syndications and Trading Association, Inc. as of June 18, according to an association news release.

The new 2007 LCDS Protocol amends the documentation for loan CDS transactions that reference the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement, which were published on June 8, 2006, to adhere to the new standards under the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement published on May 22.

According to the association, some of the substantive changes between the old LCDS terms and the new LCDS terms that will be effected by the protocol include:

• If the LCDX members of CDS IndexCo LLC vote to hold an auction under the LCDS Auction Rules in relation to a reference entity and designated priority, all single-name LCDS transactions governed by the new LCDS terms that are triggered within a specified time frame will be cash-settled based on a price determined by an auction similar to recent unsecured CDS protocols;

• If an auction fails or is abandoned, physical settlement will apply to LCDS transactions, with an extended period to deliver a notice of physical settlement;

• The buyer is prohibited from delivering a notice of physical settlement for 21 days after the event determination date. This standstill is intended to ensure that as many transactions as possible are captured by any auction;

• If there is a relevant secured list for a reference entity that is withdrawn by the secured list publisher, the calculation agent will automatically begin a search for a substitute reference obligation. Under the old LCDS terms, such a search began only upon request from either party or the delivery of a credit event notice; and

• The secured list publisher is the polling agent if there was a relevant secured list within the 30-business-day period prior to the date being tested under the poll.

The new protocol is open to association members and non-members, and the adherence period runs from July 24 to Aug. 24.

ISDA is a New York-based financial trade association that represents participants in the privately negotiated derivatives industry.

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