medium · Corporate Credit Analysis covenants
How does the 'Restructuring' credit event in a standard Credit Default Swap (CDS) relate to cross-default provisions?
- Cross-default provisions are contractually forbidden from ever appearing in indentures governing CDS-referenced bonds.
- A 'Restructuring' credit event under CDS documentation is legally identical to a cross-default trigger in an indenture.
- A cross-default declared against just one series of a borrower's bonds will, on its own, almost always trigger an automatic CDS payout too.
- A borrower may execute a distressed exchange (Restructuring) to avoid a payment default that would trip cross-default clauses.
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