Corporate Bond Put Options with Default terms- illiquid market?

Want to start a discussion on the topic on OTC Bond option positions as so few seem to have any practical experience of these instruments and liquidity appears very low. Questions I have are:
i) Can corporate bond option puts (European) be bought/sold as "protected" thus including default language and paying out like a Credit Default Swap or TRS and therefore providing some price movement protection too? If so, can the default terms be based on ISDA and include or exclude events like modified restructuring?

ii) Such options become American in the event of a default as they are exercised
upon default. Any knowledge on the mechanics of events at and post default would be helpful

iii) As Corporate Bond Options can either be unprotected (Default free and expire on default of the underlying) or protected (include default language and thus pay out upon default) can anyone provide advice/knowledge on pricing of such options without being too mathematical

I do not want too mathematical an explanation on pricing (i.e. Black, Hull & White and other probability/stochastic based theorems-just a brief conceptual outline of how they are priced in the real world when I call a bank for a quote)

Please remember I am NOT talking about embedded options in a bond issue just stand alone corporate bond puts and calls-not Treasuries but risky corporate bonds.

This is an important question as if my understanding is correct we could soon be launching a new Guarantee concept for SMEs here in the UK which could revolutionize small business funding and could potentially be rolled out elsewhere to fill the "funding gap" and put funds into the real economy almost risk free for banks. A "buy and hold" trading strategy utilizing the above instruments in rated bonds could completely hedge the risks we take on via guaranteeing SMEs.

I would be eternally grateful for any real life knowledge or experience anyone has in trading and use of Corporate Bond Options with and without default language/terms and the margin implications in the forthcoming new regime for Put Option writers that are non financial entities
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