An ISDA credit determinations committee has been asked to rule on whether Adecco Group’s decision to change its official location and name amounts to a succession event.
The unusual request came after shareholders of the Swiss human resources provider on April 21 approved a proposal to move the corporate seat from Cheserex to Zurich. The move sees the company change its name from Adecco SA to Adecco Group AG.
Aktiengesellschaft, abbreviated AG, is a German word for a corporation limited by shares. SA stands for the French Societe Anonyme, and is also a public limited company.
There are US$310m net notional of CDS outstanding on Adecco Inc with the five-year contract trading around 14bp wider on Thursday at around 102bp, according to BNP Paribas pricing.
In a statement on its website, ISDA said the DC issue has been deferred pending deliberation by the EMEA DC legal subcommittee.
“With these things there is always some uncertainty as to whether it’s been just a change of name, or whether a new company has been created,” said one credit strategist. “Seems to be a name change here, but I guess it’s always safer to ask the question.”
Investors are not taking any chances after holders of CDS on Unitymedia found their paper to be worthless following the German cable operator’s merger with UPC in 2010. In that situation, no request was made for a succession event to be determined; CDS holders incorrectly assumed that protection remained valid after the new entity took the Unitymedia name. Two years after the merger, investors realised their CDS contracts referenced an entity that no longer existed, but missed the 90-day deadline for transferring contracts to a successor entity.
Under Article II of the 2014 ISDA Credit Derivative Definitions a successor is an entity that succeeds to at least 25% of the relevant obligations of the reference entity. Where an entity assumes all the obligations of the reference entity (defined as a Universal Successor) and either the reference entity has ceased to exist or is in the process of being dissolved, the entity that assumes the obligations is deemed the sole successor for credit derivative purposes. That would mean all of the CDS transfer to the new name.
That would seem to fit the Adecco events, but according to some investors it would not apply to a simple name change.
”Its not a big thing – this happens always in case of a name change, “ said Jochen Felsenheimer, CEO of Munich-based credit hedge fund XAIA. “ But the entity remains the same, so no event; nothing spectacular.”