Credit Derivatives & the Future of Chapter 11
Stephen J. Lubben
Seton Hall University - School of Law
July 17, 2007
Seton Hall Public Law Research Paper No. 906613
Am. Bankr. L.J., Vol. 84, No. 4, p. 405, 2007
Credit derivatives transfer the default risk of an underlying debt instrument, without transferring legal title. These transactions have several benefits outside of bankruptcy. But once a corporate debtor enters bankruptcy - in particular, chapter 11 - it enters a bargaining process that was bottomed on a model of creditor behavior that may no longer hold because of credit derivatives. A creditor may not act like a traditional creditor if they no longer face the risk of non-payment because that risk has been hedged. In this essay I argue that credit derivatives will substantially alter chapter 11, at least with respect to large corporate debtors.
Number of Pages in PDF File: 27
Keywords: Swaps, Derivatives, Chapter 11, Reorganization, CDS, credit default swaps
Date posted: June 5, 2006 ; Last revised: March 3, 2010
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