Debt buybacks and exchanges are contentious propositions at the best of times. Present loan market trading levels make them very hard to resist for many heavily indebted entities. But rating agency treatment of these trades is having far-reaching consequences – not just for the corporates involved but for the loan market as a whole.
Critics are focusing on the treatment of distressed exchanges – or those from entities rated lower than single-B minus. The agencies treat a distressed exchange as a default, on the thesis that if it did not happen then bankruptcy would be imminent.
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