Tuesday, November 17, 2009

The Sweetness of Debt Restructuring

A Reuters article revealed:

Debt restructuring has been removed as a CDS trigger in the U.S.

Did credit default swap writers learned from their health insurance counterparts? Is a heavy debt load like obesity, a pre-existing condition not to be covered?

Like their insurance siblings with health, credit coverage should cover credit impairment. Who removed debt restructuring as a trigger? A different article suggested federal regulators.

Changes expected to roll out as early as next month (Feb. 2009) , however, will remove the restructuring trigger for standard contracts in North America.

Market participants are in discussions with regulators with the hope of removing or reducing the penalty for excluding restructuring as a trigger in contracts, said a person familiar with the discussions who declined to be identified.

I thought CDS's were outside the current regulatory framework. Apparently not. The timing is interesting as the Obama Stimulus bill gave a $26 billion tax break for firms buying back debt for pennies on the dollar, i.e. restructuring.

Private equity underwriters (PEU's) badly need to shed piles of debt accumulated during the buyout bubble. What else did Uncle Sam do the repave the road to profits for the PEU boys. Federally sponsored corporafornication continues.