A bondholder finds a sneaky way to trigger insurance against default


IN 2013 Codere, a Spanish gaming firm, owed money it could not repay. Its bonds were trading at just over half face value. Blackstone, a private-equity firm, offered it a cheap $ 100m loan. But there was a catch. Blackstone had bought credit derivatives on Codere’s debt that would pay out about €14m ($ 19m) if Codere missed a bond payment. So Codere delayed a payment by a couple of days to prompt a “technical default”. Blackstone got its payout; Codere got its loan and stayed afloat.

On the satirical “Daily Show”, Jon Stewart, the then host, likened the scheme to the insurance fraud in “Goodfellas”, in which mobsters insure a restaurant before blowing it up. But that missed an important point. Blackstone did not blow Codere up—quite the opposite. As it said at the time, it “provided capital when no one else would, which allowed the company to live and fight another day”. The investors who sold Blackstone credit-derivative contracts had in effect bet that Codere would not go bankrupt….

Post Author: martin

Martin is an enthusiastic programmer, a webdeveloper and a young entrepreneur. He is intereted into computers for a long time. In the age of 10 he has programmed his first website and since then he has been working on web technologies until now. He is the Founder and Editor-in-Chief of BriefNews.eu and PCHealthBoost.info Online Magazines. His colleagues appreciate him as a passionate workhorse, a fan of new technologies, an eternal optimist and a dreamer, but especially the soul of the team for whom he can do anything in the world.

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