Restructuring

When companies start struggling but it's an orderly event (read: NOT LEHMAN) then there is usually time for either a Chapter 11 Bankruptcy protection or something similar in Europe and Asia, the end result is that the Debt gets restructured, maybe your 5 year bond becomes a 25 year bond. Maybe your claim for 100 USD becomes a claim for 20 USD or maybe someone jumps ahead of you in the seniority capital structure.

The bottom line is that the bond you had is different to the one you used to have.

Credit Derivatives have a number of different Restructuring clauses which can be used in different scenarios - initially we started with "Full Restructuring" (FR) which was hoped to be all that the market needed.

Unfortunately this didn't really capture some of the nuances of the US Investment Grade market and a modification was introduced back around 2001 and you had US names trading with "Modified Restructuring" (Mod-R or MR)

It was then noted that European and UK legislation didn't fit into the Mod-R landscape but also FR wasn't doing the job so "Modified Modified Restructuring" (Mod-Mod-R, MMR or MM) was introduced in 2003 and then implemented very broadly via the Small Bang Protocol in 2009.

Finally the market worked out that even Mod-R didn't really work for the US High Yield market so most US High Yield names trade with "No Restructuring" (NR) - this seemed to work best for these companies as they were less likely to be restructured anyway.

The BIS has a paper in their Quarterly review of 2005 by Frank Packer and Haibin Zhu on this.