Portfolio Compression: Win-Win to Avoid Cherry Picking (Part 3/3)
Cherry Picking occurs when a company in default collects money from counterparties but waits to pay them only if there is money left when the administration process is completed. Several reasons may prevent from netting values owed against receivables or profits. For example if the jurisdiction does not allow for netting, if there are no netting agreements in place, or simply because contracts are paid in different currencies making it impractical to net, among other reasons. Compressions can help in the challenging task of reducing counterparty risk when netting is not possible.