Does a voluntary debt exchange trigger CDS?

Usually not. A Restructuring has to bind all holders of the obligation. An exchange offer that holders can refuse leaves the old bonds outstanding on their original terms, so it is generally not a Restructuring, even if most holders accept.

How can a restructuring bind holdouts?

Through a collective action clause or a law with the same effect: once the required majority of holders votes for the new terms, they bind every holder, including those who voted against. That binding effect is what can turn a negotiated deal into a Restructuring credit event, as with Greece in March 2012.

Is Restructuring a credit event on North American corporate CDS?

Not on standard contracts. Standard North American corporate CDS trades without Restructuring (No R), so only events such as Bankruptcy and Failure to Pay trigger it. European corporates usually trade with Modified Modified Restructuring, and sovereigns usually with full Restructuring.

Is a rescheduling of debts a Restructuring credit event?

It can be. Postponing or deferring interest or principal payment dates is one of the qualifying changes. It counts only if it binds all holders, results from the reference entity’s worsening credit, and, in most cases, affects a Multiple Holder Obligation. A rescheduling of a single bilateral loan usually fails that last test.

Does a cancelled AT1 coupon or a Maximum Distributable Amount restriction trigger bank CDS?

Generally not. Additional Tier 1 terms allow coupons to be cancelled, and regulators’ Maximum Distributable Amount rules can force that. A payment the terms allow the bank to cancel is not a Failure to Pay, and a change already provided for in the terms is not a Restructuring. AT1 is also deeply subordinated, so it is not a deliverable obligation for senior CDS.

Does a Restructuring trigger the CDS automatically?

No. After a Restructuring, either party may trigger settlement with a Credit Event Notice. Under Mod R and Mod Mod R, buyer and seller decide separately, and maturity limits narrow which obligations can be delivered.

CDS Restructuring credit event: R, Mod R, Mod Mod R

What counts as a Restructuring

Under the 2014 ISDA Credit Derivatives Definitions, a Restructuring needs a change to an obligation’s terms that binds all its holders. The change must be agreed with enough holders to bind everyone, or announced or decreed by the reference entity or a government in a form that binds everyone. It must also go beyond what the obligation’s terms already allowed for. The qualifying changes are:

a reduction in interest, in the rate or the amount payable;
a reduction in principal or premium payable at redemption;
a postponement or deferral of interest or principal payment dates;
a change in ranking that makes the obligation subordinated to another obligation;
a change in currency into one that is not a permitted currency.

The change must also result from a deterioration in the reference entity’s creditworthiness or financial condition. Routine administrative, accounting or tax adjustments are excluded.

Rescheduling of debts

A rescheduling, where the borrower gets more time to pay, falls under the third qualifying change: a postponement or deferral of interest or principal. Extending a bond’s maturity by three years, or pushing coupon dates back, can therefore be a Restructuring. The same conditions apply as to any other change: it must bind every holder, stem from the reference entity’s deteriorating credit, and go beyond what the original terms already allowed. An extension option written into the bond from the start does not count.

Official-sector reschedulings, such as Paris Club agreements on bilateral government loans, rarely meet the Multiple Holder Obligation test below, because each loan has a single lender.

The Multiple Holder Obligation test

A restructuring of a single bilateral loan is not enough. In most cases the obligation must be a Multiple Holder Obligation: held by more than three holders that are not affiliates of each other, with the change requiring the consent of at least two thirds of holders. A bond is treated as meeting the two-thirds part, so for bonds the question is mostly whether there are enough independent holders.

Holdouts and collective action clauses (CACs)

The binding requirement is why holdouts matter. If a restructuring only works by holders choosing to swap their bonds, anyone who refuses keeps the old bond on its original terms. Nothing has bound all holders, so there is usually no Restructuring credit event.

A collective action clause changes that. Once the required majority votes for new terms, the clause applies them to every holder, including holdouts. The best-known case is Greece. Its voluntary private sector exchange alone did not trigger CDS. In March 2012 Greece applied collective action clauses, added to its domestic-law bonds by statute, to bind the remaining holders, and the Determinations Committee then resolved that a Restructuring credit event had occurred. See sovereign CDS credit events.

R, Mod R and Mod Mod R

Each trade elects how Restructuring applies. The election decides whether a Restructuring is a credit event at all and, if it is, which obligations can then be delivered.

Election	Usual for	Effect after a Restructuring
No R	North American corporates	Restructuring is not a credit event
R (full or Old R)	Most sovereigns; many Asian names	No extra maturity limit after a Restructuring
Mod R	Historically North American corporates	Restructuring Maturity Limitation (30 months) and Fully Transferable obligations
Mod Mod R	European corporates	Modified Restructuring Maturity Limitation (60 months for restructured bonds and loans) and Conditionally Transferable obligations

The maturity limits exist because, after a Restructuring, the cheapest bonds to deliver are often the longest-dated ones. Limiting maturity keeps protection buyers from delivering a very long bond to collect the most. These limits sit on top of the ordinary Maximum Maturity characteristic.

Triggering after a Restructuring

A Restructuring does not settle trades by itself. Either party can deliver a Credit Event Notice. Under Mod R and Mod Mod R, buyer and seller choose separately whether to trigger, and deliverable obligations are grouped into maturity buckets with an auction for each. A protection buyer who holds back keeps the trade, and the protection, in place.

What to check in the documents

The trade’s restructuring election in the confirmation or the transaction type in the Physical Settlement Matrix.
Amendment and voting clauses in the indenture: which changes need unanimous consent, and which a majority can impose on all holders.
Whether a change was already provided for in the original terms, such as a built-in payment-in-kind option, which is not a Restructuring.
The holder base, for loans and private placements, to see whether the Multiple Holder Obligation test can be met.

In practice

Why the published cases are not Restructurings

Every case CDSBench has published so far is a North American corporate, where standard CDS trades without Restructuring. Their credit events are Bankruptcy, as with Rite Aid’s Chapter 11 filing, or Failure to Pay, as with New Fortress Energy. A distressed exchange before either event would not have triggered those contracts, however much it cut the bonds’ value.

Read the case: Rite Aid Corporation 2023 →Read the case: New Fortress Energy 2025 →

Common questions

Does a voluntary debt exchange trigger CDS?: Usually not. A Restructuring has to bind all holders of the obligation. An exchange offer that holders can refuse leaves the old bonds outstanding on their original terms, so it is generally not a Restructuring, even if most holders accept.
How can a restructuring bind holdouts?: Through a collective action clause or a law with the same effect: once the required majority of holders votes for the new terms, they bind every holder, including those who voted against. That binding effect is what can turn a negotiated deal into a Restructuring credit event, as with Greece in March 2012.
Is Restructuring a credit event on North American corporate CDS?: Not on standard contracts. Standard North American corporate CDS trades without Restructuring (No R), so only events such as Bankruptcy and Failure to Pay trigger it. European corporates usually trade with Modified Modified Restructuring, and sovereigns usually with full Restructuring.
Is a rescheduling of debts a Restructuring credit event?: It can be. Postponing or deferring interest or principal payment dates is one of the qualifying changes. It counts only if it binds all holders, results from the reference entity’s worsening credit, and, in most cases, affects a Multiple Holder Obligation. A rescheduling of a single bilateral loan usually fails that last test.
Does a cancelled AT1 coupon or a Maximum Distributable Amount restriction trigger bank CDS?: Generally not. Additional Tier 1 terms allow coupons to be cancelled, and regulators’ Maximum Distributable Amount rules can force that. A payment the terms allow the bank to cancel is not a Failure to Pay, and a change already provided for in the terms is not a Restructuring. AT1 is also deeply subordinated, so it is not a deliverable obligation for senior CDS.
Does a Restructuring trigger the CDS automatically?: No. After a Restructuring, either party may trigger settlement with a Credit Event Notice. Under Mod R and Mod Mod R, buyer and seller decide separately, and maturity limits narrow which obligations can be delivered.

This guide paraphrases CDSBench’s reading of the 2014 ISDA Credit Derivatives Definitions. The Definitions, the transaction’s confirmation and any Credit Derivatives Determinations Committee resolution govern. Decision support, not legal advice or a Credit Event determination.

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The Restructuring credit event, and why holdouts matter