Hedge-fund managers are putting a new twist on credit-default swaps, using the contracts to fortify bets on troubled companies.

The swaps, which work like insurance policies when companies default on bonds and loans, fell out of favor after Wall Street’s outsize bets on the swaps soured during the financial crisis. Now, investors are increasingly combining credit-default-swaps trades with elements of activist investing to push companies toward default in some cases and away in others.

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