A company that accepts this sort of a deal is basically trading its reputation for cash. Their CDS in the future will be more expensive, affecting their contract negotiation position. but they are willing to take that future hit for the present ability to survive. I don't see it as obviously wrong, unless the CDS contract itself stipulates otherwise (e.g. multiple damages in case of "voluntary" trigger) or there being a statutory requirement to this effect.
Excuse my ignorance on the subject, but isn’t the CDS issued and traded by third parties unrelated to the company it pertains to? I don’t see how the company in question has any moral obligation to not take this deal, nor do I see why it would affect future CDSs, which will almost certainly add a clause that prevents this from happening.
CDS are traded in standard contracts and it would require a lot committee-ish type work to get things changed along with the fact that I'm not even sure how you would define this type of trade in a clear way. Really doesn't happen overnight [0]
As far as the issuer goes, issuers get a reputation for fucking over creditors and that makes it hard for them to tap markets in the future (except in these yield hungry days..). People really don't forget about this kind of stuff.
Liquidity in the CDS market can help creditors hedge their debt to the company in question, so -- setting aside the moral question -- doing something erratic with the derivative market on their own credit would likely hurt their ability to borrow in the future. Creditors would be less confident about hedging, and would offer credit with less favorable terms to compensate.
