A recent debt restructuring by Cemex may trigger around US$600m in payments on credit default swaps insuring the company’s debt, a derivatives trade association said on Monday.
A committee of market participants at the International Swaps and Derivatives Association is considering whether Cemex’s debt restructuring constitutes a restructuring under the terms of its CDS contracts.
Payments on CDSs are typically triggered by a bankruptcy or the failure of a borrower to make a payment on their debt, though many contracts also include triggers for restructurings.
Restructuring is more commonly included as a trigger for CDS payments outside of the United States. This is because in the United States, bankruptcies are more commonly pursued by companies struggling with their debt.
Cemex in August finalised a $15 billion debt restructuring, after struggling with debt the company took on to finance its acquisition of Australia’s Rinker in 2007.
Net volumes of $588 million are outstanding in swaps protecting Cemex’ debt, according to the Depository Trust & Clearing Corp.
CDSs are a type of derivative and are used to protect against a borrower defaulting on its debt or to speculate on its credit quality.