The International Swaps and Derivatives Association (ISDA) has announced it plans to launch a protocol created to facilitate the settlement of credit derivatives trades involving Tembec Industries Inc., a unit of Tembec Inc. Tembec Industries is an integrated Canadian forest products company that has filed a Chapter 15 petition in the United States as a final step in its recapitalization.
The 2008 Tembec CDS Protocol permits cash settlement of single-name, index, bespoke tranche and other high-yield credit derivative transactions. The Protocol offers market participants an efficient way to settle credit derivative trades referencing Tembec Industries. It enables parties to agree to settle their trades on a multilateral basis based on a final price established at an auction. This approach to settlement brings considerable operational efficiencies, while also preserving a participant’s right to receive or deliver obligations if desired. Markit and Creditex will administer the auction, scheduled for October 2, 2008, which will determine the final price for Tembec Industries bonds.
"ISDA is committed to supporting the integrity of credit risk management practices and operational efficiency across privately negotiated derivatives," said Robert Pickel, executive director and ceo, ISDA. "The protocol is a widely tested mechanism that reassures derivatives industry participants of a smooth and reliable settlement process."
The Protocol is open to ISDA members and non-members alike. The adherence period for the Protocol will run from Wednesday, September 17 to Monday, September 22, 2008.
The text of the Protocol and form of adherence letter, guidance on the mechanics of the Protocol, answers to frequently asked questions and details on adherents, will be available at http://www.isda.org/. Details on the auction are included in the Protocol.