Auction sets price for Quebecor World bonds

NEW YORK, Feb 19 (Reuters) - Sellers of protection on the defaulted debt of Quebecor World Inc (IQW.TO) will recover 41.25 percent of the protection sold, following an auction by dealers, auction administrators said in a news release.

The final price Quebecor World's bonds was based on an auction by 13 dealers, according to administrators Markit and Creditex.

The indicative price earlier came in at 42.125 percent, though there were more sellers than buyers of the debt,

Commercial printer Quebecor World said last month it had obtained court protection from creditors after conditions for a C$400 million ($388 million) rescue refinancing were not met, snuffing out a last-ditch effort to shore up its balance sheet. For details, see [ID:nN21404364]

Credit default swaps protect against borrowers defaulting on their debt. When a borrower fails to pay, the contract is triggered and protection sellers compensate protection buyers for the amount of debt insured, minus the amount of principal the debt recovers after default.

Based on the final price, this would mean that the amount of principal the Quebecor bonds recover would be 41.25 percent of par. Thus a buyer of protection would be compensated 58.75 percent the amount of debt insured. (Reporting by Karen Brettell; Editing by Tom Hals)