Shifting stakeholders

YRC Debt Swap Faces Resistance From Creditors With Derivatives

“YRC Worldwide Inc., seeking to avoid bankruptcy by exchanging equity for debt, faces resistance to the swap from investors holding bonds and derivatives that pay out in a default,…The Overland Park, Kansas-based company extended the deadline after 72 percent of holders of its $536.8 million of notes agreed to the exchange, below the 95 percent threshold required by the company’s bank lenders.

So, if you are a bondholder in a company where a lot of other bondholders own CDS, you basically move down in the capital structure, without even knowing it.   Those considering loading up on heavily discounted corporate bonds should take this into account.

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