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Dec. 21, 2018

Kramer Levin Wins Sears CDS Case in Precedent-Setting Ruling

On Dec. 19, 2018, Kramer Levin prevailed in a landmark credit default swaps (CDS) case on behalf of our clients Barclays, Citibank, Credit Suisse, Goldman Sachs, JP Morgan, Elliott and PIMCO.  Kramer Levin secured a “yes” decision in the Sears External Review – a very rare process invoked only four times in the last decade when the ISDA Credit Derivatives Determinations Committee is unable to reach a determination.  The disagreement related to the inclusion of a syndicated leveraged loan in the list of instruments that can be used to settle the Sears CDS contracts in the CDS auction that is expected to take place in January. This precedent-setting decision will impact settlement of CDS contracts going forward and the usefulness of CDS contracts as a true hedging tool for participants in the leveraged loan market.  Participation and liquidity in the credit derivatives market should increase as a result.

The Sears ISDA DC External Review Panel posted the decision here and announced that it plans to “set out the principal reasons for that decision and certain facts and assumptions upon which it was based prior to 5pm EST on Friday, December 21, 2018.”

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