Anglo Irish has triggered restructuring credit event, says Isda

Restructuring as a Credit Event was much debated back around the year 2000 and ISDA definitions changed as a result. In this specific case there's really no question that Allied Irish has effectively defaulted on its sub debt, so the declaration of a Credit Event is reasonable. What's interesting is that European regulators likely thought that their coerced exchanges for sub debt would not impact senior debt

From a piece I read a few weeks ago from BNP (which may be out of date), they were saying that it is a credit event because the re-structuring isn't entirely voluntary in that if the majority vote for it, then it is imposed on the minority who don't and therefore because it is clearly adverse and non voluntary (on the minority) it qualifies as a restructuring credit event

Isda does not say what exactly the committee believes is a credit event. My interpretation is that it is not the bond exchange itself which is a restructuring credit event (this does not fall under the definition of restructuring) but the proposed change to the terms of the original bonds. It looks as if Anglo Irish will change the terms of the old bonds so that they have the option of redeeming them at, effectively, zero. Reduction in principal is definitely a credit event. This will trigger both senior and sub CDS contracts, but only senior bonds (which are guaranteed by the Irish government) will be deliverable into senior contracts.

Fascinating question: is the Credit Event due to the coerced exchange for subordinated debt? (I just checked the ISDA press release and it provides no clarification.) From my past knowledge of CDS (which must be outdated to some extent), default on the sub debt is a Credit Event for senior debt. But it never occurred to me that the weaker Credit Event of Restructuring could spread from sub to senior in this way. If this is indeed how the Credit Event is being called, I wouldn't be surprised to witness a new hue and cry about CDS markets. While I have no objection, this circumstance may roil the European bank debt markets.