05 Feb 2009, Joel Clark, Risk magazine
The auction set a final value of 33.5% on first-lien loans and 4% on second-lien loans, for the purpose of settling loan-only credit default swap (LCDS) transactions.
The value of the second-lien loans was determined immediately after the initial bidding period because there was no interest from market participants in physical settlement, removing the need for a second phase of the auction process.
Banks including Morgan Stanley, JP Morgan and Dresdner Kleinwort requested an auction last month to value and settle outstanding Sanitec contracts. The Finnish bathroom products company missed two loan repayments after failing to win lender backing for a deferral while it restructured.
According to Markit, this was the first European leveraged loan credit event.
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