Goldman Traders Are Caught Up in a Bizarre, Tense Hedge Fund Battle
Surprised that HN likes this article:)<p>I&#x27;ll start by laying out my biases and stating that I&#x27;m not a big fan of most PE firms.<p>I think most people understand that CDS are a few things.<p>1) usually bespoke in that each one is different, ie these are contracts that you approach a bank to write for you and not fungible like a share.  This means they are generally illiquid and usually don&#x27;t pay out.<p>2) These used to be used, and still are, as insurance for bond holders.<p>3) as everyone how as seen or read the Big Short now knows, they started to be used by third parties to speculate on bankruptcies.<p>4) They pay out only when the agreed upon terms are triggered<p>Blackstone, the PE firm holding the CDS&#x27;s, is trying to get an otherwise healthy firm to &quot;default&quot; on some of their debt so that Blackstone can get the CDS payout.<p>The problem is that the firm doesn&#x27;t need to default so Blackstone is enticing them with better funding rates for their debt if they just do a &quot;tiny bit of defaulting&quot;.<p>Like I said, I don&#x27;t really have alot of respect for PE firms.<p>This is dirty.  If this is allowed to happen then who in their right mind would ever again underwrite a CDS for a companies debt if some other company can so easily force a default event.<p>I know that 2008 probably soured the term CDS for the average person but they are a very important part of the credit market and risk management.<p>Just to be clear, the companies bonds  are trading at or above par value, indicating that investors have confidence in the company’s ability to satisfy its debts as they come due.