UBS Is Sole Successor To Credit Suisse’s CDS, Swaps Panel Rules

(Bloomberg) -- The panel which oversees the credit-default swap market has ruled that UBS Group AG will become the reference entity for Credit Suisse Group AG’s contracts.

The Credit Derivatives Determinations Committees said that UBS Group is the “sole successor” to Credit Suisse Group, according to a notice on its website on Monday. The decision comes almost four months after the Swiss government brokered a deal for UBS to take over its beleaguered rival.

The committee pointed to UBS Group’s statement on June 12 on the completion of the acquisition of Credit Suisse as the basis for its decision. UBS assumed Credit Suisse Group’s outstanding obligations under its outstanding debt securities at that point.

Market participants had asked the committee the question on the successor shortly after this confirmation, with a further question made to clarify which obligations could be deliverable at subordinated level. 

Since the takeover was announced in March, investors started betting that the price of Credit Suisse and UBS contracts would eventually converge, pocketing the difference. Credit Suisse’s five-year senior contracts were indicated at 88 basis points as of 9:13 a.m. in London, down from over 900 basis points in mid-March according to ICE Services data. UBS’ equivalent swaps were indicated at 92.5 basis points. 

The process to select new standard reference obligations, or which UBS Group securities will replace the debt previously underlying Credit Suisse Group’s swaps, has commenced, according to the statement. Until this is decided “it is possible that some disruption could occur,” the committee said. 

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The committee also urged market participants to act quickly in deciding how best to approach transactions related to swaps tied to Credit Suisse Group’s subordinated debt. A number of options were outlined.

The decision on the successor also marks the end of speculation that the Credit Suisse contracts could have triggered a payout. In May, the panel ruled twice against calling a credit event over Credit Suisse following the wipeout of $17 billion of additional tier 1 bonds and the UBS takeover. 

The net notional volume of Credit Suisse’s swaps outstanding amounted to $1.74 billion as of May 12, according to data from the Depository Trust & Clearing Corporation.

Eleven participants on the panel agreed that UBS becomes the reference entity for Credit Suisse’s CDS, while there were no votes against. Credit Suisse abstained under the panel’s rules from taking part in the committee. 

(Updates throughout.)

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