We are now in the strange world of buying protection from a counterparty on a name that has a lower CDS spread than the counterparty - and the counterparty doesn't have to post collateral.

Collateral posting requirements in CDS trades are typically reserved for lower credit quality counterparties in order to ensure payments are made. Because other monoline mortgage insurers – such as MBIA Insurance Corp., Ambac Assurance Corp. and Radian Asset Assurance – are AA and AAA rated, their CDS contracts are unlikely to include the provisions, said the market participant.

http://www.ft.com/cms/s/2/57f389b0-8f0d-11dc-87ee-0000779fd2ac.html

If I were to buy protection on Diageo for 5 years @ 80bps from Bear Stearns which is AAA rated and therefore doesn't have to post collateral, judging by the spreads, there is more chance of the counterparty defaulting than the reference entity.