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Digital Bankruptcy Swap A variety of credit risk management tools are currently available on the market, including letters of credit, trade insurance and credit default swaps. Enron Credit has recently added another risk management tool - the Digital Bankruptcy Swap (DBS). Registered Professional level members of Enron Credit can view Digital Bankruptcy Swap prices on hundreds of companies.
A Digital Bankruptcy Swap gives you the ability to make your credit portfolio more liquid and hedge portions of your portfolio as needed. If you have significant exposure to a particular company, industry, or geographic region, Digital Bankruptcy Swaps allow you to buy and sell protection so you can mitigate that risk. Unlike other risk management tools that cannot be sold after they are purchased, DBS protection can be bought and sold on Enron Credit and EnronOnline™. This allows you to proactively and dynamically manage your credit risk portfolio as your business needs change. |
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| Features that make the digital Banckruptcy Swap unique include : |
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Minimal documentation - All contract terms are standardized in a master agreement |
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No lengthy investigations, negotiations or disputes - The DBS pays out after a Bankruptcy Event occurs in respect of the Reference Entity. |
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Full payout - Payout is equal to the full principal amount of the contract |
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Two-way pricing - Bid/offer prices are freely available from Enron Credit and EnronOnline™ |
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Confidentiality - Digital Bankruptcy Swaps remain confidential before and after a Bankruptcy Event as do your own assets and contracts. |
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Flexibility - You determine the extent of protection and the underlying reference entity - without encumbering the Reference Entity's balance sheet |
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How does a Digital Bankruptcy Swap work?
A bankruptcy swap is a method for transferring the risk of non-performance of a financial obligation due to bankruptcy from one company to another. One company (the "protection seller") will promise to pay a certain fixed amount (the "notional") to another company (the "protection buyer") if a third company (the "reference entity") is declared bankrupt. For offering this protection, the seller will charge a fee - usually specified as a percentage of the notional amount. This is normally defined in basis points, where 100 basis points = 1%.
| Example: You want to purchase $1 million of protection in the event that XYZ Corp is declared bankrupt. For this protection, Enron Credit might charge 2% per year of the notional, or US$20,000. In return, if a Bankruptcy Event occurs in respect to XYZ Corp, you will be paid the full $1 million. |
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| For a more detailed discussion about Digital Bankruptcy Swaps and other credit derivatives, please see "Introduction to Credit Derivatives" in the Learn More section. To compare Digital Bankruptcy Swaps with other risk mitigation products on the market, please see our Product Comparison.
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Please click here if you would like to download a copy of the Enron Credit Digital Bankruptcy Swap Brochure (PDF file). You will need Adobe Acrobat installed on your machine in order to view the document.
Curious to see your company's ECC? The estimated recovery rate for a key supplier? The estimated probability of bankruptcy for your biggest customer? Go to Credit Data & Tools to find real-time pricing information.
If you would like to transact with us, please Contact Us. Or, join Enron Online™ to trade Digital Bankruptcy Swaps and Credit Default Swaps in real-time. For more information about Digital Bankruptcy Swap transactions, please see General Terms and Conditions. |
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