When Blackstone’s GSO Group came up with a debt restructuring plan for New Jersey-based building firm Hovnanian earlier this year, the debt exchange was dependent on manufacturing a cheapest-to-deliver security that would produce a bumper pay-out on the firm’s CDS from a default that was also part of the plan.
The scheme drew harsh criticism and was seen as an outrage – a threat to the integrity of the CDS market itself.
Although GSO is a master of the art, such behaviour – dubbed “net short debt activism” – is far from isolated.
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