Debt Distribution and the Term Structure of CDS Spreads

Realogy has a massive wall of debt to refinance by 2013:



Not surprisingly, the cost of CDS protection on the firm's debt peaks at that horizon. If the company can pass that milestone (i.e., refinance this debt before it matures), the markets consider the firm will then have an increasing chance to survive:



Same thing with First Data: The firm has a huge revolver maturing in 2014. The bonds maturing in 2015 are not small either ($7bn), but half of it is PIK-able, i.e., its interests can be paid with more debt.

That explains the usual term structure of CDS protection on First Data: it’s most expensive over the next 5 years, when the 2014 revolver matures. Markets seem to think that, if the company can survive that, they should survive longer, so the cost of protection decreases.