Aurelius Broke Windstream’s Bonds to Save Them

This post originally appeared in Money Stuff.

Look, nothing about the Windstream situation is a “manufactured default.” A “manufactured default” is when a company gets together with a hedge fund that has bought credit-default swaps on the company (which pay off if the company defaults on its debt) and agrees to do some sort of minor optional default on its debt in order to trigger the CDS. In return, the hedge fund gives the company some money, at the expense of other hedge funds who had sold CDS and lose out from the default. I think that this trade is rather neat—it takes a zero-sum synthetic bet between hedge funds and turns it into a source of financing for a real company—but lots of people think that it is market manipulation and I suppose I can see where they’re coming from.