Event Publicly Available Information:
Sears Roebuck Acceptance Corp.
Should the CDS Auction Settlement Terms for Sears Roebuck Acceptance Corp. be modified, as allowed by the DC Rules, in order to allow for the addition of a new Deliverable Obligation be added to the Final List?
We refer to (x) the DC’s decision on December 20, 2018 to accept for consideration the question as to whether the CDS Auction Settlement Terms for Sears Roebuck Acceptance Corp. should be modified, as allowed by the DC Rules, to prevent a market participant from creating an Open Interest to buy exceeding the face amount of all Deliverable Obligations not otherwise owned or controlled by that market participant (Issue Number: 2018121801), and (y) the general interest question posted to the DC on December 20, 2018 requesting, among other things, that the DC consider the addition of a new Deliverable Obligation – a senior note issued by Sears Holding Corp, secured by a second lien on some of the debtors assets and guaranteed by Sears Roebuck Acceptance Corp. (CUSIP 812350AE6) (the “Sears 2L Notes”) – to the Final List (Issue Number: 2018122001) (the submissions described in clauses (x) and (y) above, the “SRAC Submissions”).
In light of the unique situation presented by SRAC where a CDS seller controls the majority of the Deliverable Obligations (and as described in greater detail in the SRAC Submissions), we respectfully request that the DC consider the addition of a new Deliverable Obligation: the Alternative Tranche Line of Credit Loans (the “2L Alternative Tranche Loans”) which are second lien loans issued by Sears Holdings Corp. and guaranteed by, among others, the Reference Entity, Sears Roebuck Acceptance Corp. (“SRAC”). The 2L Alternative Tranche Loans are identified by Bloomberg ID BL2757674 and Financial Instrument Global Identifier (FIGI) BBG00LDFHGP4, and the credit agreement is available at:
https://www.sec.gov/Archives/edgar/data/1310067/000119312518213777/d663253dex103.htm.
We recognize that the guarantee by SRAC is not a Qualifying Affiliate Guarantee under the 2014 Credit Derivatives Definitions, but would be qualifying under any other Corporate CDS contract in all other regions and an acceptable deliverable under any CDS contract outside of North America. Importantly, if the 2L Alternative Tranche Loans were to be added to the Final List, it will ensure that more Deliverable Obligations are available at a price that more accurately reflects market dynamics and will help alleviate the prospects of a short squeeze and potential auction manipulation.
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We confirm that a copy of this statement may be provided to the members of any Credit Derivatives Determinations Committee convened under the DC Rules in connection with the General Interest Question to consider the issues discussed herein, and that it may be made publicly available of the ISDA Credit Derivatives Determinations Committee website. We accept no responsibility or legal liability in relation to its contents.
| Date | Description | Document |
|---|---|---|
| Closed | Americas DC Statement January 4, 2019 The Americas DC met on January 4, 2019 to discuss Issue Number 2018121801, Issue Number 2019010201 and Issue Number 2019010202 in connection with the Sears Roebuck Acceptance Corp. (SRAC) Auction. With respect to the request received by the Americas DC asking it to consider amending the Auction Settlement Terms, the Americas DC resolved not to make any changes to the Auction Settlement Terms as the Auction Settlement Terms continue to broadly reflect the outcomes available to market participants which would have been available if Physical Settlement had been the applicable Settlement Method, consistent with 3.2(d) of the DC Rules. | |
| Ongoing | Americas DC Statement January 4, 2019 The Americas DC met on January 3, 2019 to discuss Issue Number 2018121801, Issue Number 2018122001, Issue Number 2018122101, Issue Number 2019010201 and Issue Number 2019010202 in connection with the Sears Roebuck Acceptance Corp. Auction (SRAC). With respect to the request received by the Americas DC asking it to consider working with the relevant “regulatory and supervisory bodies” to de-compose the CDX High Yield credit indices, the Americas DC noted that Markit North America Inc., as administrator of the CDX High Yield credit indices, is the appropriate body to address this request. Market participants who wish to consider this further should discuss this with Markit North America, Inc. With respect to the request received by the Americas DC asking it to add the alternative tranche line of credit loan (the Alternative Tranche L/C Loan) to the Final List of Deliverable Obligations with respect to SRAC, the Americas DC dismissed this issue as it has already determined that the Alternative Tranche L/C Loan is not a Deliverable Obligation of SRAC. Market participants should refer to the meeting statement of November 5, 2018 for further detail. With respect to the request received by the Americas DC asking it to add the senior note issued by Sears Holding Corp and guaranteed by SRAC (CUSIP: 812350AE6) to the Final List of Deliverable Obligations with respect to SRAC, the Americas DC dismissed the issue as this obligation does not constitute a Qualifying Affiliate Guarantee and is therefore not a Deliverable Obligation of SRAC. The Americas DC met on January 4, 2019 to continue discussions in connection with SRAC and a statement in relation to that meeting will follow. | |
| Ongoing | Americas DC Statement January 3, 2019: The Americas DC met to discuss Issue Number 2018121801, Issue Number 2018122001, Issue Number 2018122101, Issue Number 2019010201 and Issue Number 2019010202 in connection with the Sears Roebuck Acceptance Corp. Auction (SRAC). The Americas DC agreed to reconvene on Friday, January 4, 2019 at 11AM EST to continue discussions with respect to the SRAC Auction. | |
| Request Accepted by DC |