ISDA Asked to Rule If Sharp Loan Deals Amounted to Credit Event

  • Question on ISDA website asks if a credit event occurred
  • Sharp reaches `basic' deal on amendments to borrowings

The International Swaps & Derivatives Association Inc. has been asked to consider whether financial agreements made by Sharp Corp. constituted a credit event that could prompt settlement of insurance contracts tied to the company’s debt.

An unidentified market participant submitted on Monday the question, “has a restructuring credit event occurred with respect to Sharp,” according to the derivatives industry group’s website. The ISDA’s determinations committee has yet to consent to consider it, according to the website.

The Japanese electronics company said in a statement on April 1 that it reached a basic deal with its two main lenders Bank of Tokyo-Mitsubishi UFJ Ltd. and Mizuho Bank Ltd. “regarding amendments to the terms and conditions of the existing borrowings” from the banks.

There’s a risk that Sharp will be ruled to have triggered a credit event if the lenders agree to change interest rates on current loans, according to Nomura Holdings Inc. and SMBC Nikko Securities Inc., according to Nomura Holdings Inc. and SMBC Nikko Securities Inc. Nomura also said there’s a possibility that Sharp’s deal announced March 30 to postpone the due date of 510 billion yen ($4.6 billion) in syndicated loans by one month to April 30 may also merit such a classification.

Rescue Deal

Foxconn Technology Group’s Chairman Terry Gou agreed to a rescue deal last week to take control of Sharp for 389 billion yen. The Japanese company, whose core business making liquid crystal-display televisions has been undercut by lower-cost Asian rivals, said last week it expects an operating loss of 170 billion yen for the fiscal year ended March 31, reversing an earlier forecast for a profit.

An ISDA spokesman in Hong Kong couldn’t be contacted, while Sharp spokesman Toyodo Uemura declined to comment.

The ISDA’s determinations committee decides whether credit events occurred according to the terms of derivative contracts and determines whether auctions on credit-default swaps should be held, according to the ISDA’s website.

The cost to insure Osaka-based Sharp’s bonds against default fell to 456 basis points on April 4, down from as high as 1,653 basis points in November, according to CDS data from CMA.

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