Back in September 2007, I wrote about how "booming debt derivatives markets are encroaching on corporate decision-making." At the time, buyers and sellers of credit-default swaps were lobbying for a say on how the underlying bonds were structured and managed, with mixed results. Given that the size of the CDS market dwarfed the corporate bond market upon which it was based, derivative investors' influence could become "too big to ignore," as the story was titled.
Today, the Financial Times is reporting that default swaps are being blamed for playing a role in two bankruptcy filings this week. On and off the record, sources gripe to the FT that lenders to paper group AbitibiBowater and mall operator General Growth Properties deliberately blocked debt restructurings, their minds on CDS payouts in the event of a default. Once only a theoretical possibility--as was the gist of my 2007 story--when a bondholder is reluctant to agree to restructuring these days, often "you find out that these holdouts had significant CDS protection," saws a lawyer.
Don't say that you weren't warned. |
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