- DelphX Capital Markets (DELX) announced the addition of a novel Credit Rating Security (CRS) product
- The product will give bondholders and traders the ability to position against potential rating changes on existing bonds
- It creates a collateralized reference note designed to cover the expected reduction in the value of a bond following a rating downgrade
- DelphX is a technology and financial services company which develops and distributes the next generation of structured products
- DelphX Capital Markets Inc. (DELX) is up 4.35 per cent, trading at C$0.12 per share at 4:07 pm ET
DelphX Capital Markets (DELX) announced the addition of a novel Credit Rating Security (CRS) product.
The product will give bondholders and traders the ability to position against potential rating changes on existing bonds. Due to the revolutionary nature of this industry-first product, DelphX has filed a provisional patent to protect its intellectual property rights ahead of the initial launch.
This represents a very large market, as most institutional-quality bonds carry creditworthiness ratings. The ratings range from AAA (strongest) to C or D (weakest) from rating agencies such as Moody’s, Standard & Poor’s, and Fitch. These ratings are not static, but often fluctuate during the life of a bond, affecting the market value of the underlying asset.
The new CRS product is based on the company’s Collateralized Put Obligation (CPO) and Collateralized Reference Note (CRN) products. It creates a collateralized reference note designed to cover the expected reduction in the value of a bond following a rating downgrade, such as from BBB to BB. The collateral sets a maximum payout predetermined by both parties and is deposited at the outset.
Should a rating change trigger occur, the insured party will receive from this collateral the net change in the value of the reference bond at the time the CRS was issued and the market value the day after the rating change was announced. The risk to the party providing coverage against a downgrade is capped at the pre-arranged collateral but could be less if the reduction in the bond’s overall value is lower than the funds held in escrow.
The mechanism is similar to the previously announced DelphX bond default process. However, it has smaller premiums and collateral and a different trigger (downgrade rather than default).
DelphX is a technology and financial services company which develops and distributes the next generation of structured products.
DelphX Capital Markets Inc. (DELX) is up 4.35 per cent, trading at C$0.12 per share at 4:07 pm ET.
