I wonder if it's legal for companies to buy their own debt on the secondary market or CDS on themselves from another party. If it is, I have some fantastic business models to sell to VCs.
1. You sell $1B bond, then proceed to wreck havoc of the company, for example by taking ridiculous amount of bad risk. Rumors start flying around. Stock plummets. CDS spread shoots up. Your bond plummets. You use $700M of the $1B proceeds of prior bond issurance to buy back all your debt from the secondary market, even though it's not callable. You keep the $300M cash.
2. You buy naked CDS on yourself from somebody, with notional say twice as much as all your outstanding debt. If you ever go down, you'll get such a windfall that you'll snap right back out of Chapter 11 looking prettier than before you went in. In other words, you cannot fail. Technically, you could still fail after the CDS sellers fail to pay you. But we all know now that big CDS sellers are not allowed to fail; our government would call their CEOs into a room and hold guns to their heads and ask them to accept huge sums of money for peanuts in return and the CEOs, after reading the fine print in big bold fonts, would try their personal best to fein indiginity while signing and to hold their laughter long enough to get back into their limos. Therefore you cannot fail, no matter how badly you screw up.
So let's do circle time. I buy CDS on me from you, you buy CDS on you from her, she buys CDS on her from me. As Borat would say, NIIIIICE!
But these are brutes. There're more subtle varieties.
1. You buy CDS on yourself, then casually give out some hints of pending trouble -- insider selling, unintended leak to a reporter while drinking, etc. CDS spread shoots up. You sell or unwind your existing CDS for a 100% profit. Insiders buy low. Company turns out fine. CDS spread goes back down. Repeat as necessary.
2. You're a holding company. One of your subsidiaries is in trouble. Or maybe you decide it's in a dead-end market but can't find a good price to sell. You buy CDS on the sub. You force it down. You get paid, wealth transfer from bankrupt sub to parent.