Delphi: Paying Cash Really Paid

Recovery at default time is different than at bankruptcy exit time. Sometimes vastly different, as for Delphi (DPHIQ.PK).

In 2005, when Delphi went bankrupt, there was some fear of a short squeeze in the underlying bonds as the number of outstanding CDSs was 12 times that of the underlying bonds. An auction was held to help get a cash settlement for excess CDSs.

Recovery price: 63.375
Delphi is having some difficulty getting out of bankruptcy and current recovery is estimated at around 32.000.
With the benefit of hindsight, paying cash instead of taking bonds was a very clever or lucky move.

Sources:

Delphi Auction Results
Delphi May Require GM Financing for Bankruptcy Exit
Meter still running on GM’s Delphi ride