SPA 2007: New loan CDS index could boost efficiency, says Katten Muchin's McLaughlin

By Peter Heap

New York, March 26 - Plans for a new bank loan credit default swap index could be a big boost for investors, Robert McLaughlin, partner at Katten Muchin Rosenman LLP, said Monday.

"I think once the index is created there's going to be a lot more efficiency in terms of balancing portfolios," McLaughlin told the Structured Products Association's 2007 conference in New York.

He recalled a conference discussion a few years back at which the idea had generated a heated discussion.

But now, "a lot of those issues have gone away" and the index looks to be "months away."

Such an index would join the existing credit default swap indexes maintained by CDS IndexCo LLC and Markit Group Ltd.

From his point of view, the most exciting development in the past year was the development of standard documentation by ISDA for credit default swaps based on bank loans.

A series of issues had to be resolved, McLaughlin noted, including how widely distributed a loan needs to be to qualify as syndicated and issues concerning levels of seniority, levels of collateralization and which assets secure the borrowings.

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