Autos bailout bill unlikely to trigger CDS contracts, says Bank of America

Bank of America analysts suggested yesterday that the new draft of the autos bailout bill is unlikely to trigger credit default swap contracts, and of orphaning LCDS contracts.

This comes as a follow-up to BofA's 9 December research, when analysts posited their concern regarding triggering a CDS bankruptcy clause according to the 2003 Isda credit derivatives definition. Isda notes that in a CDS bankruptcy, a reference entity either seeks or becomes "subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian, or other simlar official for it or for all or substantially all its assets."

Triggering a CDS credit event is made difficut by two factors. Firstly, the new draft gives the autos czar limited control where the threshold over which it would have control was raised from transactions over $25 million to transactions over $100 million. Secondly, the new bill only allows the czar to prohibit a transaction if it is to the detriment to the long-term viability of an autos manfacturer.