Implications of CDS Listings for Reference Entities and Creditors

Christopher L. Culp (), Andria van der Merwe () and Bettina J. Stärkle ()
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Christopher L. Culp: Johns Hopkins University
Andria van der Merwe: Johns Hopkins University
Bettina J. Stärkle: Compass Lexecon

Chapter Chapter 10 in Credit Default Swaps, 2018, pp 193-217 from Palgrave Macmillan

Abstract: Abstract Empirical academic research regarding the impact of credit default swaps (“CDSs”) on lenders to reference entities and reference entities themselves yield the following general results: (i) CDSs are generally used by lenders to fine-tune their desired risk/return profiles; (ii) the impact of CDS availability on banks’ credit exposure monitoring is bank-specific; (iii) the availability of CDSs positively impacts the supply of credit to reference entity borrowers, impacts the design of syndicated loan facilities, and affects reference entity borrowing costs differently based on the credit characteristics of borrowers and structures of their loans; (iv) the availability of CDSs influences capital structure and financing decisions of reference entity borrowers; and (v) creditors with significant CDS-hedged exposures can impact the bankruptcy decisions of borrowers both positively and negatively.

Keywords: Credit default swap; CDS; Impact of CDSs; Loan supply; Borrowing costs; Capital structure; Borrower reference entities; Empty creditor; Bankruptcy; Restructuring (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:pal:psircp:978-3-319-93076-3_10

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DOI: 10.1007/978-3-319-93076-3_10

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