Tribune bondholders will lose 98.5 percent

The credit default swaps (CDS) market is going to be a nightmare in 2009 because corporate bankruptcies are really picking up in the new year. The first major CDS settlement occurred yesterday and it was a near complete loss for sellers of default protection. Tribune bondholders should only receive 1.5 cents on the dollar, according to the CDS settlement. This is a figure even lower than settlements from Lehman’s bankruptcy.

Sellers of protection on Tribune’s bonds are facing losses of 98.5 percent of the insurance they sold, based on the results of an auction on Tuesday to determine the value of the bankrupt company’s credit default swaps.

The auction determined swaps on Tribune’s bonds are worth 1.5 cents on the dollar, said auction administrators Creditex and Markit.

Credit default swaps insuring Tribune’s loans recovered 23.75 percent, meaning protection sellers are facing losses of 76.25 percent the amount of insurance they sold.

Net volumes of around $1.2 billion are outstanding in credit default swaps insuring Tribune’s debt, according to data by the Depository Trust & Clearing Corporation.

This type of result does make one believe that AIG suffered problems of insolvency more than illiquidity.

Sources
Tribune CDS Recover 1.5 Percent In Auction – Deal Book
Tribune CDS & LCDS Credit Event Auction – Credit Fixings