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Empty Creditors and Debt Exchanges

By Daniel Hemel


This Comment reviews recent proposals to address the \u22empty creditor\u22 problem. The author argues that previous proposals would do little to reduce the risk that empty creditors will block debt-for-equity exchanges in order to collect credit default swap payments. The author presents an alternative approach that would limit the dangers of empty crediting by modifying the standardized language of swap agreements. Specifically, the author argues for widening the definition of \u22credit events\u22 to encompass voluntary debt for- equity exchanges that surpass a certain participation threshold. This reform would benefit the vast majority of credit protection buyers and sellers, while simultaneously reducing deadweight losses resulting from unnecessary bankruptcy filings

Topics: Law
Publisher: Yale Law School Legal Scholarship Repository
Year: 2010
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