CIT default swap auction to be held on November 20

NEW YORK (Reuters) - Auctions to settle credit default swaps insuring the debt of CIT Group CITGQ.PK will he held on November 20, following the commercial lender's bankruptcy earlier this month, auction administrators Markit and Creditex said on Thursday.

The auction is expected to be one of the largest since the failure of Lehman Brothers LEHMQ.PK due to the large amounts of protection written on CIT's debt, though market participants said the process has been well tested and is unlikely to create market disturbances.

Around $3.1 billion in net volumes is outstanding in single name protection on CIT's debt, according to data by the Depository Trust & Clearing Corp. In addition, CIT was included in a number of tranche trades based on CDS indexes and was a common credit in Collateralized Debt Obligations.

The auction will set a value for the CDSs, which will be used to close out positions. When a borrower defaults, sellers of protection on the debt pay buyers the sum insured, minus a recovery value.

CIT, a lender to hundreds of thousands of small and medium-sized businesses, filed for bankruptcy on November 1, as the global financial crisis left it unable to fund itself and the recession clobbered its loans.

CDSs are used to protect against a borrower defaulting on their debt or to speculate on their credit quality.

(Reporting by Karen Brettell)