ISDA Calpine CDS Protocol Similar To Delphi's

TheInternational Swaps and Derivatives Associationlast week hashed out a credit default swap protocol forCalpine Corp.and is expected to release it today. The protocol has a structure similar to that ofDelphi's and will include index transactions and specifically exclude most single-name trades. Calpine is believed to have CDS exposure in the ballpark of Delphi's, which is estimated at $28 billion.

Although the protocol is designed to cash settle solely index transactions, adherents to the protocol will be able to deliver a single-name 6% convertible note due 2014, the price of which will be settled in an auction. Calpine's 7.75% '15 convertible notes, another single-name trade, will not be included in the protocol. These two notes were singled out because they contain non-standard subordinated language, which differs from other Calpine single-name CDS trades. For subordinated debt to be included in the protocol it must conform to certain criteria.Kimberley Summe, general counsel for ISDA, explained that the 7.75% '15 notes will not be included because they contain unusual provisions that make them subordinate to senior unsecured debt.

Summe said that members discussed whether to include single-name trades. This was a sticking point in the development of the Delphi protocol. As in the Delphi case, ISDA decided not to include single-name trades in the Calpine protocol because of time pressures. Buyers of CDS protection have 30 business days to settle a trade after a credit event. Calpine filed for bankruptcy on Dec 20.

Summe said she expected the protocol to gain strong support from the investment community. "We are expecting a healthy number of adherents. We would expect a similar amount of adherents as for the Delphi protocol," she said. There were 571 adherents to the Delphi protocol. The Calpine protocol is expected to close on Jan.12 and an auction is expected to be held on Jan. 17.