The bankruptcy filing of troubled auto parts supplier Delphi Corp. late last year is known as the largest corporate credit event to rattle the credit default swap market to date - with more than $20 billion in total notional exposure. That makes the way in which the Delphi-linked CDS trades were settled a lesson for future evaluation procedures for a number of market participants. And while the $12 trillion - and growing - credit default swap market is expected to require a heavier reliance on an optional International Swaps and Derivatives Association's method for settling CDS index trades, events such as the Delphi bankruptcy last year illustrated that substantial price differences exist between bonds valued using the protocol and those using other settlement methods, primarily because prices were determined under the index protocol method some 40 days sooner on average.

"A big event like this lets us observe how the market really works," said Kevin Kendra, a senior director at Fitch Ratings. Last year broke the record for the number and total notional balance of credit events called during any 12-month cycle on record, according to Fitch. Delphi's filing alone accounted for 78% of the credit events by number and 92% by notional balance. This year has begun with a string of difficulties for the U.S. auto industry, most recently resulting in the bankruptcy filing of auto parts supplier Dana Corp. Similarly, a potential General Motors Corp. bankruptcy filing could represent the largest corporate credit event to hit the U.S. market.

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