Q: Are there certain circumstances in which CDS (credit default swaps) should not be paid after a bankruptcy?
Most bondholders have a natural interest in seeing a company succeed. In fact, many will work out deals (interest, terms, forgiveness, and restructurings), to give management a 'second chance', depending on the outlook and the circumstances.
Now, if you own a fully-hedged corporate bond position, do you have a vested interest in seeing the company file for bankruptcy protection? Yes, if you put your hedge on at prices higher than what is on bid, currently.
And, maybe this is what is going on:
...holders of fully 90% of Chrysler’s bonds are now on board with the government’s deal. - Felix Salmon
