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This sounds like a fairly obvious scenario that the lawyers who define the CDS would’ve considered. Is that true?
by dogruck 9y ago
This sounds like a fairly obvious scenario that the lawyers who define the CDS would’ve considered. Is that true?
- dboreham 9y agoI was thinking the same thing, based on some discussion we had about a big contract we entered into that can terms where if we as the supplier got into financial difficulty, our customer could release our code from escrow and run it themselves. The concern was that the customer might deliberately try to push us into financial difficulty (e.g. by not paying us on time) as a way to in effect permanently avoid paying for our service. So our legal team added wording to the effect of "except if you caused it".
- yellowstuff 9y agoNope! Blackstone has successfully done it before: https://www.bloomberg.com/view/articles/2013-12-05/blackstone-made-money-on-credit-default-swaps-with-this-one-weird-trick https://www.bloomberg.com/view/articles/2013-12-05/blackston...
- dogruck 9y agoThanks for the link. That article makes this intriguing point: “But you shouldn't overstate that value. The reason that Blackstone made money on its credit-default swaps is not just that they were triggered by this clever maneuver. Just triggering CDS is not a big deal, because CDS pay out based on the difference between the face value of a bond and its post-default trading value.” Is the same thing going on in this new deal?
- whatok 9y agoAll of the outstanding bonds except two of their smaller issues are being quoted above/close to par. CDS has not been triggered yet so can't really say but around those prices BX would probably lose money.