Six Flags CDS recover around 13 pct in auction

NEW YORK, July 9 (Reuters) - Sellers of protection on Six Flag's (SIXFQ.OB) bonds are facing losses of around 87 percent based on the initial results of an auction on Thursday to determine the value of the bankrupt company's credit default swaps.

CDSs on Six Flag's bonds are worth around 13 cents on the dollar, said auction administrators Creditex and Markit. Contracts insuring the company's loans are worth around 95.75 cents, they said

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

Payments on the contracts were triggered last month when Six Flags, the world's largest regional theme park company, filed for bankruptcy protection last month with the agreement of its lenders to reduce debt by $1.8 billion.

Net volumes of around $265 million are outstanding in credit default swaps insuring Six Flag's debt, according to data by the Depository Trust & Clearing Corp.

(Reporting by Karen Brettell; Editing by Chizu Nomiyama)