Monday, March 17, 2008

Is the Bear Stearns “rescue” a credit event for the BS CDS protection buyers ?

(Alea) I am not a lawyer, but at first sight the answer is probably NO.
JPM is assuming all BS liabilities so the CDS should converge with JPM.
There are 6 credit events:
1.Bankruptcy
2.Failure to pay
3.Obligation Acceleration
4.Obligation Default
5.Repudiation/Moratorium
6.Restructuring
BS is not bankrupt. The one that will fool outsiders is number 6: restructuring. There is no restructuring here as far liabilities are concerned.

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