Credit Derivatives & the Future of Chapter 11

Seton Hall Public Law Research Paper No. 906613

Am. Bankr. L.J., Vol. 84, No. 4, p. 405, 2007

27 Pages Posted: 5 Jun 2006 Last revised: 3 Mar 2010

Stephen J. Lubben

Seton Hall University - School of Law

Date Written: July 17, 2007

Abstract

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.

Keywords: Swaps, Derivatives, Chapter 11, Reorganization, CDS, credit default swaps

Suggested Citation

Lubben, Stephen J., Credit Derivatives & the Future of Chapter 11 (July 17, 2007). Seton Hall Public Law Research Paper No. 906613. Available at SSRN: https://ssrn.com/abstract=906613 or http://dx.doi.org/10.2139/ssrn.906613

Stephen J. Lubben (Contact Author)

Seton Hall University - School of Law ( email )

One Newark Center
Newark, NJ 07102-5210
United States
973-642-8857 (Phone)

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