GSE Credit Event: Victim Found
Canadian fund may be hit, apparently sold fixed recovery (40%) CDS. Stock (par value can$ 25) off 50% on the TSE since the event.
If the dealers who issued the credit linked notes pertaining to the ROCs interpret this event as a credit event, ROC II and ROC IV would likely experience minimal impact given the recovery rate is expected to be in the 95% to 100% range. ROC III however, has a fixed recovery rate feature which, in the case of a typical credit event, would limit the recovery rate to the fixed level of 40%. Fixed recovery rates were a feature that was commonly used in the CDS marketplace at the time that ROC III shares were issued. The rating agencies preferred the additional level of certainty that fixed recovery rate swaps provided investors by taking away the risk of very low recovery levels.
Announcement from ROC Pref II Corp., ROC Pref III Corp., and Connor, Clark & Lunn ROC Pref Corp.