Case | HBS Case Collection | July 2009 (Revised July 2009)

Delphi Corp. and the Credit Derivatives Market (A)

by Stuart C. Gilson, Victoria Ivashina and Sarah Abbott

Abstract

In 2005, Jane Bauer-Martin, a hedge fund manager, is considering what she should do with the fund's large investment in the publicly traded bonds of Delphi Corp., a financially troubled auto parts supplier. Delphi is General Motor's key auto parts supplier, and, like GM, it is burdened with large pension and other retiree liabilities that threaten to push it into bankruptcy. Bauer-Martin is considering using various credit derivatives (credit default swaps, credit-linked notes, credit default swap indices, total return swaps, etc.) to hedge her position in Delphi debt, or to speculate on future Delphi bond prices.

Keywords: Borrowing and Debt; Insolvency and Bankruptcy; Credit Derivatives and Swaps; Bonds; Financial Management; Risk Management;

Citation:

Gilson, Stuart C., Victoria Ivashina, and Sarah Abbott. "Delphi Corp. and the Credit Derivatives Market (A)." Harvard Business School Case 210-002, July 2009. (Revised July 2009.)