Tribune bankruptcy may trigger $1.5 bln in CDS payments

NEW YORK (Reuters) - Payments of around $1.5 billion will likely need to be made to settle credit default swaps on Tribune Co's debt, after the newspaper publisher on Monday filed for bankruptcy protection.

The privately held publisher of the Chicago Tribune and Los Angeles Times, which took on about $13 billion of debt when it went private last year under a deal led by real estate mogul Sam Zell, filed for bankruptcy after struggling with its heavy debt load.

Around $20.5 billion of credit default swaps on Tribune's debt are outstanding, though this number falls to around $1.5 billion after netting down redundant exposures, according to data by the Depository Trust and Clearing Corp, which confirms the majority of credit derivative trades.

Credit default swaps are used to protect against a borrower defaulting on their debt, or to speculate on their credit quality.

When a borrower defaults protection buyers are paid the full amount insured in return for the defaulted debt, or cash equivalents.

Tribune's bonds traded between 3 and 6 cents on the dollar on Monday, indicating protection sellers are unlikely to recover much from the contracts.

Tribune had $11 billion in outstanding long term debt as of Sept 28, according to a regulatory filing.

(Reporting by Karen Brettell;)