Retailers' default swaps trade at distressed levels
NEW YORK, Oct 24 (Reuters) - Credit default swaps on several retailers traded at an upfront cost on Friday, reflecting increased concerns about their health amid growing signs of a severe global recession.
Retailers are being hit particularly hard as investors fret they are facing an especially weak holiday shopping season.
The cost to insure the debt of Liz Claiborne Inc (LIZ.N) for five years leaped to 14.37 percent the sum insured, and additional annual premiums of 5 percent, according to Markit Intraday.
That means it would cost $1.44 million paid in a lump sum to insure $10 million of the fashion retailer's debt for five years, plus yearly payments of $500,000.
The swaps had traded at a spread of 841 basis points on Thursday, or $841,000 per year for five years to insure $10 million in debt, Markit data showed.
Credit default swaps trade on an upfront basis when a company's debt is considered distressed and sellers of protection want to be paid more at the outset of the contract due to higher perceived risk of the firm defaulting on its debt.
Default swaps on Jones Apparel Group Inc (JNY.N) and Sears Holdings Corp (SHLD.O) also traded upfront at 10.63 and 15.25 percent, respectively, Markit data showed. They had closed on Thursday with a spread of 773 and 958 basis points each. (Reporting by Karen Brettell; Editing by James Dalgleish)
