03 Feb 2009, Donna Haws , Risk magazine
The auction set a recovery rate of 20.75% on loan credit default swaps (LCDS) referencing Houston-based Lyondell Chemical, and a final settlement value of 15.5% for the company's CDSs.
A final settlement value of 27.5% was set for CDSs referencing Houston-based subsidiary Equistar Chemicals. Millennium America, a subsidiary based in New Jersey, saw a price of 7.125% set for its CDSs.
Protocols are required to cash settle CDS and LCDS trades, as the use of the auction procedure is not embedded in the standard CDS contract.
LyondellBasell's three US subsidiaries opted to restructure their debt obligations under protection of Chapter 11 bankruptcy, which triggered credit events, on January 6.
Protection buyers that opt for cash settlement of credit derivatives trades receive the contract's par value, less the recovery rate.
An auction is due on Thursday, February 5 to settle CDSs and LCDSs on Sanitec, a Finnish manufacturer of bathroom fittings - this will be the first European leveraged loan credit event auction.