Credit Funds: Credit Default Swaps in the Distressed Limelight

In this Ropes & Gray podcast, Alyson Gal, Matt Roose and Jill Kalish Levy discuss recent developments in loan and bond documentation in response to market concerns with how credit default swaps may affect the likelihood of defaults being triggered under the underlying debt instruments, including the advent of so called “net-short holder” provisions. As the backdrop to the market concerns that are leading to these provisions, we discuss two recent situations, Hovnanian and Windstream, as examples of transactions where the fact that market participants held CDS protection or, conversely, were CDS protection sellers, affected how events played out. We then review the various “net-short holder” provisions in loan documents and indentures seen to-date, and discuss how the market response to these concerns continues to evolve.