NEW YORK Oct 8 The value of credit default
swaps backed by defaulted Lehman Brothers bonds will be set on
Friday, with protection sellers expected to face massive losses
of around 90 percent of the insurance they sold.
Bondholders have seen their investments virtually wiped out
by Lehman's bankruptcy filing on September 15, with most of the
defaulted bonds which will be used to settle the swaps trading
in the area of 12-to-13 cents on the dollar, according to
The auction to settle credit default swaps on this debt
will likely be the second-largest settlement of the contracts
in the $55 trillion market, following an auction to settle
swaps on Fannie Mae and Freddie Mae on Monday.
Twenty-two dealers will participate in the auctions, which
will determine how much protection sellers will recover after
paying out the insurance. The timeline for the auctions
follows, according to JPMorgan.
9:45 a.m.-10 a.m. Auction participants will submit bids and
offers for the debt backing the credit default swaps, which
will be used to determine the initial recovery rate of the
10:30 a.m. Auction administrators Creditex and Markit will
publish the initial recovery price and the open interest for
the contracts will be published. The open interest reflects the
amount of bids and offers that have been made, and will show if
there are more buyers than sellers, or vice versa.
12:45 p.m. -1 p.m. Participating dealers will submit limit
orders for the debt on behalf of themselves and their clients
to fill the open interest
2 p.m. The final price of the auction will be published.
(Reporting by Karen Brettell; Editing by Chizu Nomiyama)