Debt and Hybrid Decoupling: Derivative Doomsday in Corporate Workouts

Here is a well written article discussing the impact of the decoupling of equity governance and contractual creditor rights from the ownership of underlying securities, on borrower refinancing and workout scenarios. This so called "decoupling" has been enabled by the advent of all manner of equity swaps and credit derivatives such as CDSs, CDOs and other securitised forms of debt.

The gist of the article is that the traditional dynamics of debtor/creditor workouts have been skewed by so called "empty creditors" and "empty voters".

The long or short of this is that corporate debtors are facing a tactical exercise that is much more complicated and in many instances asymetrical, given the plethora of derivative hedging strategies. It is no longer a textbook exercise to read the motives driving your shareholders and bondholders.

The end result will probably be more bankruptcy filings.

Here is the link: http://www.scribd.com/doc/13023646/Debt-and-Hybrid-DecouplingHu-and-Black