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Delphi: A Real-World Example
Delphi, an auto-parts manufacturer and one-time division of General Motors, declared bankruptcy on October 8, 2005, and serves as a useful laboratory for our study of the delivery option. At the time of bankruptcy, the notional amount of derivatives outstanding was estimated at more than $20 billion by the International Swaps and Derivatives Association (ISDA), and some estimates were as high as $30 billion. These are staggering sums when compared to the $2 billion in underlying notes issued by the company and about the same amount of bank loans, which were also eligible for delivery into default swaps. The fact that no one knew the exact total for default swaps written on Delphi is a disturbing sign. As we mentioned ...

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