The lessons from Delphi's default

The bankruptcy of US car parts maker Delphi last October proved a real test of the market's ability to settle outstanding contracts. With the spectre of GM looming large this year, Sarfraz Thind reviews the lessons learned from the landmark Delphi settlement process

It has taken a while for the issue of settlement of credit derivative contracts to come to the fore. While participants have considered proposals for improving the settlement process, it is only in the last year that the market has really been tested on this issue. The increased number of defaults in the latter half of 2005, following the relatively benign credit cycle in the two preceding years, and the continued growth of credit derivative volumes has now made this one of the top