ABSTRACT
This chapter offers insight into one aspect of the issue, specifically, how credit derivatives, as currently constructed, can skew the incentives in insolvency restructuring proceedings, placing viable insolvency and bankruptcy law restructuring goals at risk. It discusses credit derivatives, the nature of the products and extent of the market. The chapter also discusses the principal-agency issues associated with credit derivatives and negative externalities created by the market as currently constructed. It examines particular challenges for insolvency restructuring where reference entities become financially distressed or bankrupt, including the moral hazards created by the widespread use of credit default swaps as a speculative commodity. The chapter also examines some proposed regulatory changes in the European Union, United States and elsewhere and potential benefits and limitations. It explores the need for more coordinated policy and regulatory reform of financial services and insolvency law.
