Milbank was successful in convincing a three-judge panel organized under the auspices of the International Swaps & Derivatives Association (ISDA) that credit default swaps (CDS) tied to Caesars Entertainment Operating Company were not triggered in mid-December 2014. This was only the second time in the history of CDS trading that a so-called External Review Panel was convened. The arbitration-style procedure resulted from the fact that ISDA’s Credit Derivatives Determinations Committee, which normally resolves disputes about whether CDS have been triggered, failed to reach a needed super-majority, instead voting 10-5 that a so-called “Failure to Pay Credit Event” had not occurred by virtue of a disputed payment on December 15. Under the rules of the Committee, Milbank advocated to the panel on behalf of the Committee’s ten “No” voters, submitting a written brief and presenting an oral argument.
The dispute arose when Caesars, which had been in restructuring talks (and has since filed for bankruptcy protection), chose on December 15 to make a required $18.5 million redemption payment on certain bonds but deferred a $41.3 million interest payment obligation due the same day on the same bonds. In so doing, Caesars relied on a 30-day grace period for interest payments in the indenture governing the bonds. Certain participants in the CDS market had argued that under the language of the indenture, the non-payment of interest meant that the redemption payment (which was not subject to a grace period) was ineffective. The panel agreed with all of the arguments advanced by Milbank as to why the redemption payment in fact was effective. The panel unanimously concluded that the non-payment of interest was indeed protected by a grace period and thus not a “Failure to Pay Credit Event” for purposes of the CDS market.
The Milbank team consisted of Chairman Scott Edelman (Litigation), partners John Williams (Alternative Investments) and Daniel Perry (Litigation), special counsel Daniel Walfish (Litigation), and associate Julia Wilson (Litigation); they were assisted by partner Stuart Morrissy (Securities) and associate Hailey DeKraker (Litigation).
