The restructuring of Crown Cork & Seal Company, which was announced last week, has sent ripples through the swap market, as well as the collateralized debt obligation market, where several balance sheet and arbitrage deals have exposure to the ailing corporation, industry sources said.

On the swap front, the issue is drawing attention because it recalls a Conseco bank loan incident, where there was a debate over what constitutes a credit event.

The issue is, does a restructuring imply a credit event in the language of the swap agreement? According to industry sources, the International Swaps and Derivatives Association (ISDA) is currently drawing up guidelines to deal with these issues.

Regardless, Crown Cork's restructuring, combined with a lowered earnings forecast, caused a downgrade to the company's debt ratings by Standard & Poor's, which could have a negative impact on CDO deals, both synthetic and non-synthetic, where Crown Cork's debt is part of the reference (or collateral) pool.

Last year Crown Cork lost access to the commercial paper market following a downgrade, which prompted the recent restructuring, in which the company secured $400 million in additional financing.

While the funds provide better operational capital for the company, it also levers Crown Cork further.

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