Hedges Against Risk May Complicate Bankruptcy

Law360, New York (March 14, 2008, 12:00 AM EDT) -- As the credit crisis and its fallout continue, some over-leveraged hedge funds, troubled companies and municipalities may contemplate seeking the refuge of the bankruptcy court.

Ordinarily, a bankruptcy filing provides borrowers with breathing space while they use the framework of Chapter 11 (or Chapter 9 in the case of municipalities) to negotiate a restructuring of overly burdensome debt obligations.

Over the last several years, there has been an explosion in the use of credit default swaps (CDS), interest rate swaps, repurchase agreements (repos) and other financial...
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