Lehman default swaps may recover 9.75 pct area
By Karen Brettell
Fri Oct 10, 2008 10:45am EDT
NEW YORK, Oct 10 (Reuters) - Banks, hedge funds and other sellers of protection on Lehman Brothers are facing losses in the area of 91.25 percent of the insurance they sold, based on the initial results of an auction on Friday to determine the value of the credit default swaps.
There are also substantially more sellers than buyers of the debt in the auction, indicating that the final price of the swaps may be even lower than the initial recovery levels of 9.75 percent, according to results published by auction administrators Creditex and Markit.
The net open interest to sell the debt is $4.92 billion, they said.
The auction to settle Lehman's credit default swaps will be one of the largest settlements of contracts in the $55 trillion market, with around $400 billion in contract volumes estimated on Lehman's debt.
Lehman's bankruptcy filing last month sent its bond values plunging as the majority of the investment banking assets that had supported the debt were purchased by Barclays Bank, leaving debt holders at the abandoned holding company with little to reclaim.
Lehman's bonds were trading in the 11 cent on the dollar area on Friday, compared to around 12-to-13 cents on Thursday, according to MarketAxess.
"'I beg you, father, send Lazarus to my family, for I have five brothers. Let him warn them, so that they will not also come to this place of torment.’ Abraham replied, ‘They have Moses and the Prophets; let them listen to them.’ No, father Abraham,’ the rich man said, ‘but if someone from the dead appears to them, they will repent.’ And Abraham said, ‘If they do not listen to Moses and the Prophets, they will not change and repent, even if someone were to rise from the dead.’” Luke 16:27-31