Interesting article on International Financing Review on Spanish CDS.
The credit default swap market is now eyeing its first real test following the high-profile Greek credit event earlier this year - Spanish bank restructurings. Investors continue to digest the details of Spain's new banking resolution law, passed at the end of August, which is likely to inflict haircuts on subordinated debt-holders.
And in the same way that Irish bank restructurings became a case study for CDS, the process for recapitalising the cajas will be watched closely by market participants in coming months.
"This procedure for recapitalising the banks is very new, and it will have to be analysed carefully to see if it will trigger a credit event," said one Madrid-based lawyer. "If there is going to be a trigger event, the extent to which CDS works with bonds and loans with Spanish law documentation will be tested."
Sovereign CDS is still finding its way for what constitutes a credit event and the issue of deliverability. Stay tuned.
Disclosure: I am long SAN.