Synthetic credit is an invaluable tool for investors looking to hedge or quickly express a view on credit. There are fewer synthetic credit products than before the crisis, but options still include credit indices, index tranches and bespoke tranches. They all rely on a basic building block - the single name credit default swap (CDS).
In the article, "Creditflux guide: single name CDS" in Creditflux, RK&O partner Julia Lu discusses the iHeart media credit event when they failed to pay a coupon owed to a subsidiary. "People need to be aware of the limitations of using single name CDS as a hedging tool, especially if you try to hedge a position other than the reference obligation under the CDS".