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if a company's quantity of debt outstanding is shrinking, is it possible for the total face...

if a company's quantity of debt outstanding is shrinking, is it possible for the total face value of CDS that reference the debt to increase?
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Answer #1

Credit default swap is type of swap in which the risk from payment obligations from third party is mitigated to the issuer of credit defaults apps in exchange of an upfront premium.

If a company quantity of debt is shrinking, it means that company is shifting its potential risk exposure from debt payments either by realising it or by restructuring it. It could also be possible that it is is shifting its risk through entering into a lot of credit default swap.

When a company total outstanding debt is shrinking day by day it means that the recoveries are uncertain and the company is writing it off so the risk associated with those debt payments since are already shifted to credit default swaps, the face value of credit default swaps in reference to those sub standard debt also rises as chances of recoveries gets Lower.

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