The CDS curse

There has been growing concern about the influence credit default swaps (CDSs) can have on corporate reorganisation talks. Some have argued that because lenders can also hold CDS protection, they might block a debt reorganisation in order to force the company into default and trigger a payout under the CDS contract. Is there any evidence to suggest this is really happening? By Duncan Wood

Credit derivatives destroy companies, if you believe some of the recent criticism levelled at the market. Investors protected through credit default swaps (CDSs) will slam the door on distressed companies, propelling them into bankruptcy and collecting par on their bonds rather than accepting less in a restructuring. It is an argument that is getting plenty of airtime. In June, George Soros said CDSs are like having a licence to kill someone whose life insurance you stand to collect, and made