The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Blackstone’s ‘rigged’ debt exchange might be a restructuring too far for CDS market

As GSO’s controversial Hovnanian refinancing ends up in court, the wider credit default swap (CDS) market is the loser.

When is a credit event not a credit event? That eternal question was approached from an unusual angle by New Jersey-based building firm Hovnanian at the end of last year when it agreed to intentionally default on some of its debt in return for fresh financing.

The move provoked uproar in the market with the slightly surreal sight of Goldman Sachs and a large US hedge fund entreating those in the CDS market to play fair and stick to the rules.

The dispute stems from a debt restructuring scheme put forward by GSO, part of the Blackstone Group. GSO has offered to refinance Hovnanian’s outstanding $1.6 billion debt load through an exchange: swapping its existing 8% 2019 bonds for a combination of cash and bonds maturing in 2026 and 2040.

The latter 22-year bond offers a coupon of just 5% – for a credit that is theoretically rated triple C minus. More of that later.

Some $26 million of the 8% bonds involved in the exchange will, however, be bought back by a Hovnanian affiliate. The plan is to miss an interest payment on these bonds, which will effectively be the firm defaulting on itself, but will trigger the Hovnanian CDS.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree