In an AI blow-up, would insurance pay out?

Buttonwood on credit-default swaps, which are back in vogue: five-year CDS on French public debt are at a 14-year high, and the cost of insuring against an Oracle default over five years has quadrupled in 12 months as it bets on AI data centres. The column recounts past failures (Greece’s 2011 restructuring didn’t trigger payouts until 2012; Banco Espírito Santo CDS in 2014 left old-bank bondholders unprotected) and the 2014 fixes. Its argument is that new holes have opened: since 2024 liability-management exercises (out-of-court restructurings) have outnumbered conventional defaults in America, holders waited months after Altice France’s 2024 LME, and in North America, home to nearly all the AI firms in the credit storm, such restructurings don’t trigger CDS. AI financing built on data-centre leases, remaining performance obligations and suppliers lending to customers is, it says, a recipe for messy restructurings. Counterweight: defenders say sophisticated buyers are ready for long legal fights, but the column argues that turns CDS into distressed-debt bets rather than a reliable hedge.